<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: February 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _________
Commission file number: 1-8803
MATERIAL SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2673173
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 EAST PRATT BOULEVARD
ELK GROVE VILLAGE, ILLINOIS 60007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 708-439-8270
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.02 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
___ ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock of the registrant held by
shareholders (not including any voting stock held by directors or officers of
the registrant (such exclusion shall not be deemed an admission that any such
person is an affiliate of the registrant)) of the registrant was approximately
$261,695,000 at April 28, 1995 (based on the closing sale price on the New York
Stock Exchange on such date, as reported by The Wall Street Journal (Midwest
Edition)).
At April 28, 1995, the registrant had issued and outstanding an aggregate
of 15,201,066 shares of its Common Stock.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference
into the Part of the Form 10-K indicated:
Part of Form 10-K
Document into which incorporated
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Registrant's 1995 annual Parts I, II, IV
report to shareholders
Registrant's proxy Part III
statement for the Annual
Meeting of Shareholders to
be held on June 22, 1995
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PART I
ITEM 1. BUSINESS
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Introduction
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Material Sciences Corporation (unless otherwise indicated by the context,
including its subsidiaries, "MSC" or the "Company") develops, manufactures, and
markets continuously processed, coated, and laminated materials. These
materials are divided into four product groups: laminates and composites;
metallizing and coating; coil coating; and electrogalvanizing. The Company's
materials are used in motor vehicles, building products, appliances, office
equipment, furniture, lighting products, packaging, and a wide range of other
products. MSC develops proprietary value-added materials and processes to meet
specific customer and market requirements and believes it has achieved product
or technological leadership in each of its four product groups.
Customers generally benefit from the energy savings and environmental
advantages of MSC's manufacturing processes and products. In the laminates and
composites product group, and the metallizing and coating product group, the
Company is primarily a manufacturer and marketer of its own proprietary
products. In the coil coating product group and electrogalvanizing product
group, MSC generally acts as a "toll coater" by processing its customers' metal
for a fee, without ever taking ownership of the metal.
Headquartered near Chicago, the Company, through its Pre Finish Metals
Incorporated ("PFM") and Deposition Technologies, Inc. ("DTI") subsidiaries,
operates seven manufacturing plants. PFM operates three facilities in Elk Grove
Village, Illinois; one facility in Morrisville, Pennsylvania; and one facility
in Middletown, Ohio. PFM also operates a facility in Walbridge, Ohio on behalf
of Walbridge Coatings, an Illinois Partnership (the "Partnership"), formed among
subsidiaries of PFM, Inland Steel Industries, Inc. ("Inland") and Bethlehem
Steel Corporation ("Bethlehem"). DTI operates a thin film sputter-deposition
metallizing, coating, and laminating facility in San Diego, California.
Additional information concerning certain transactions and events is
incorporated herein by reference to Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Company's 1995 annual
report to shareholders, parts of which are incorporated herein by reference.
MSC, a Delaware corporation, was founded in 1971 and has been a publicly
traded company since 1984. The principal executive offices of the Company are
located at 2300 East Pratt Boulevard,
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Elk Grove Village, Illinois 60007, and its telephone number at that address is
(708) 439-8270.
Laminates and Composites
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Laminates and composites combine layers of steel or other metals with
layers of polymers or other materials to achieve specific properties, such as
noise and vibration reduction, thermal insulation or high reflectivity in
lighting. These products range from decorative to functional engineered
materials and are designed to meet specific customer requirements. Products in
this group largely result from the Company's research and development efforts
and the proprietary equipment and processes designed and implemented by its
engineering and manufacturing organizations. The Company supplies its laminates
and composites to a variety of markets both in the United States and
internationally. The majority of these products are used in the automotive,
lighting, and appliance industries. The major products in this product group
are Polycore Composites(R), disc brake noise dampers, and Specular+(R).
Polycore Composites are multilayer composites consisting of various metals,
adhesives, and other components, typically consisting of metal outer skins
surrounding a thin viscoelastic core material. Polycore Composites are
engineered to meet a variety of needs. The Company believes it is a leader in
developing and manufacturing continuously processed coated materials that reduce
noise and vibration and create thermal barriers. The automotive industry is the
largest market for metal composites, which are being used to replace solid sheet
metal parts, including oil pans, valve covers, front engine covers and heat
shields. Polycore Composites are also being evaluated for use in dash panels,
floor pans, and other internal components in order to help reduce road noise.
Polycore Composites are also found in a number of other products, including lawn
mower engines, air conditioners, computer disk drive covers, and appliances,
with numerous other products under evaluation.
The disc brake noise damper market developed as manufacturers moved to
asbestos-free brake linings. The increased brake noise these linings produce
can be virtually eliminated by the composite materials pioneered by the Company.
The Company believes it accounts for over 50% of the sales of disc brake noise
dampers to the domestic original equipment market. The Company also believes it
is a significant supplier to the emerging domestic aftermarket, which it
estimates will grow to be at least three times as large as the domestic original
equipment market. Disc brake noise damper sales for the 1995 fiscal year set
another record as a result of the Company's original equipment supplier
relationship with General Motors Corporation ("General Motors"), increased sales
to Ford Motor Company and Chrysler Corporation, and as MSC further penetrated
the disc brake aftermarket.
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Specular+, a laminate of silver-sputtered coated film and sheet metal, was
developed by the Company for the growing high reflective fluorescent lighting
market. Because pure silver offers unsurpassed reflectivity and precise light
control, Specular+ produces virtually the same amount of light with only half
the bulbs of a typical white painted fixture. The result is a significant
reduction in the cost of electricity for lighting.
The market for laminate and composite materials is competitive, both
domestically and in the international markets in which the Company is seeking to
become established. There are several competitors in each product market served
by the Company, some of which have greater resources than the Company. The
Company believes, however, that it is competitive based upon its technology,
product development capability, technical support, and customer service.
Metallizing and Coating
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The Company uses sputter-deposition technology to metallize wide rolls of
flexible substrates, generally consisting of thin polymeric films. In the
sputter-deposition process, a target material is disintegrated, in a vacuum
chamber by ion bombardment, into its component atoms or molecules, which are
then deposited onto the surface of the base material to be coated. Such base
material (commonly called the substrate or flexible web) can be polymeric film,
foil, fabric, or paper.
Sputter-deposition permits the use of a wide range of target materials,
singly or in combination (including metals, metal alloys and metal oxides), some
of which cannot be applied in any other way. This flexibility allows formation
of composites of metals, dielectrics, and semiconductors. Sputter-coated,
flexible polymeric substrates may be designed to have specific properties,
including energy reflectance, transmission, absorption and electrical
conductance. After the sputtering process, these materials are often further
enhanced with other coatings, adhesives, and films, resulting in a multilayer
laminate.
The Company's metallizing and coating sales consist principally of solar
control window films for use in the automotive aftermarket and building
applications. The Company sells these products through seven distributors, one
of which accounted for approximately 61% of fiscal 1995 metallizing and coating
sales. The Company believes there are significant growth opportunities in the
building market, since there is currently low market penetration and industrial,
commercial, and residential building owners are becoming more familiar with the
benefits of solar control window film. Solar control window films can lower
energy bills year-round by reducing heat penetration in the summer and retaining
residual warmth in the winter. They also reject ultraviolet light, thereby
eliminating the damage it causes. In
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commercial environments, window film generally improves productivity by reducing
glare and heat generation.
This product group includes the silver-sputtered, coated film used in
Specular+, although intercompany sales of such film are excluded from this
product group's sales. The Company has developed other products for the high
reflective fluorescent lighting market. In addition, the Company participates
in the microwaveable food packaging market with its Insceptor(R) film products
that offer precise control of heating, browning and crisping of food during the
cooking process. The Company has established agreements with rigid and flexible
packaging companies to supply the U.S. market. This product group also includes
safety films and security seals. Safety films offer protection by making
windows shatter resistant. Security seals are used in tamper-evident packaging
and anti-counterfeit measures.
MSC believes that there are four major domestic companies producing
competitive metallized and coated materials in addition to the Company. Some of
these competitors have greater resources than the Company, including patented
technology. The Company competes on the basis of a number of factors, including
product performance and quality, completeness of product offering, new product
development capabilities, service, and price. The Company believes that it is
competitive in these areas.
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Coil Coating
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The Company believes that coil coating is the most environmentally safe and
energy-efficient method available for applying paint and other coatings to
metal. This continuous, highly automated, high speed process applies coatings
to wide coils of metal. In the process, sheet metal is unwound from a coil,
cleaned, chemically treated, coated, oven-cured, and rewound into coils for
shipment to manufacturers which fabricate the coated metal into finished
products that are sold into a variety of industrial and commercial markets. The
coatings are designed to produce both protective and decorative finishes.
Through techniques such as printing, embossing and striping, special finishing
effects can also be created. The finished product (i.e. prepainted or coil
coated metal) is a versatile material capable of being drawn, formed, bent,
bolted, riveted, chemically bonded and welded. The Company generally acts as a
"toll coater" by processing coils for steel mills, or their customers, without
taking ownership of the metal. The Company charges by weight or surface area
processed.
The Company's coil coated products are used by manufacturers in building
products, heating and air conditioning, fuel tanks, lighting, truck trailer,
above-ground swimming pools, and other products. The Company's strategy in its
coil coating business has been to produce high volume competitive coated
products at low cost as well as to identify, develop and produce specialty niche
products meeting specific customer requirements. The Company also offers
proprietary products such as Weldrite(R), a weldable coating; Enduratex(R), an
embossed plastisol coated material capable of being stained to simulate the look
of wood; and ER6, its patented high temperature non-stick coating designed for
bakeware and cookware products.
Coil coating technology reduces the environmental impact of painting and
reduces manufacturers' energy needs. In coil coating processes, over 95% of the
coating material is applied, in contrast with the significant waste from
"overspray" typical in post-fabrication painting. The energy required to cure
coil coated metal is substantially less than that required by other coating
methods. These savings are achieved because of high speed material processing
and because 90% to 95% of the coatings' volatile organic compounds are recycled
back into the curing ovens and used as fuel.
Manufacturers that use prepainted materials can eliminate or significantly
reduce on-site post paint lines and the associated compliance with complex
environmental and other regulations. Prepainted materials facilitate the
adoption of just-in-time and continuous process manufacturing techniques which
can result in improvements to work in process inventory, plant utilization, and
productivity. Since prepainted metal is cleaned, treated and painted while
flat, the result is a more uniform and higher quality
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finished part than can be achieved by even the best post-fabrication painting
operation. There are no hidden areas where paint is difficult to reach and
where corrosion can begin after the product has been marketed. As a result,
companies using prepainted material generally benefit from lower manufacturing
costs and improved product quality. Use of prepainted metal may, however,
require product design or fabrication changes and more stringent handling
procedures during manufacturing.
The coil coating process competes with other methods of producing coated
sheet metal, principally post-fabrication finishing methods such as spraying,
dipping and brushing. The Company believes that coil coating accounts for
approximately 10% of all the sheet metal now being coated. The Company expects
that the market penetration of coil coated metal will increase as a result of
more stringent environmental regulation and the energy efficiency, quality, and
cost advantages provided by prepainted metal as compared to post-fabrication
painting, particularly in high-volume manufacturing operations. The Company
estimates that there are approximately 85 companies operating coil coating lines
in North America. The Company believes it is one of the largest coil coaters,
with approximately 15% of the total tons processed in the United States in
calendar 1994. Competition in the coil coating industry is heavily influenced
by geography, due to the high costs involved in transporting sheet metal coils.
Within geographic areas, coil coaters compete on the basis of quality, price,
customer service, technical support, and product development capability.
Electrogalvanizing
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Electrogalvanized ("EG") steel is the primary corrosion resistant steel
product used in automobile and light truck bodies. Significant domestic demand
for EG steel started in 1985 and is estimated to have been 3.6 million tons in
calendar 1994. The Company believes that demand will grow as automobile
manufacturers respond to consumer demands for longer warranty protection against
rust and, to a lesser extent, due to increased applications for EG steel in the
appliance and other non-automotive industries.
MSC participates in the electrogalvanizing market through its 50% financial
interest in and role as operator of the Partnership. The term of the Partnership
ends on June 30, 1998. Through the Partnership, MSC electrogalvanizes zinc and
zinc-alloy coatings, and applies organic coatings onto sheet metal. There is
growing demand by the automotive industry for a full complement of products such
as zinc-nickel, zinc-nickel with a thin organic coating, and other organic
coated zinc-nickel products such as fuel tanks that offer additional protection
against corrosion. As a result, a shift from pure zinc to differentiated
materials has commenced. These newer materials are particularly in demand by
Japanese automakers in the United States -- currently among the end-use
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customers for the Partnership's services. The Partnership's facility is the
only facility in North America capable of meeting, in a single pass through its
line, the demand for this full complement of products.
Sales to the Partnership represented 22%, 24% and 27% of MSC's net sales in
fiscal 1995, 1994 and 1993, respectively. MSC's net sales for
electrogalvanizing consists of various fees charged to the Partnership for
operating the facility. Such fees are the predominant financial return from its
participation in the Partnership. There are both fixed fees (for selling,
general and administrative expenses, a portion of the financing, taxes, and
insurance) and variable fees based on production volumes (for the balance of the
financing, operating expenses, and profit). The Company pays the actual costs
of operating the facility, so the overall profitability of its participation in
the Partnership depends on its skill and efficiency. The operating expense
portion of the variable fee is based on standard costs, which may be adjusted to
reflect matters beyond the Company's control, upon agreement of the partners or
informal arbitration. The fees charged to Bethlehem and Inland by the
Partnership for services fund the standard operating costs of the Partnership
(including the Company's per ton profit allowance) and, at a defined contractual
production volume, all of the Partnership's financing costs. At lesser levels
of production, the Company is obligated to fund a portion (not to exceed 50%) of
the Partnership's financing costs.
Bethlehem and Inland are two of the major suppliers of sheet steel to the
U.S. automobile industry. The orders for the Partnership's toll coating
services are primarily and independently generated by Bethlehem and Inland for
their respective customers, although the Partnership may also accept orders from
outside parties to the extent of available capacity and production schedules.
Historically, third party sales have not been significant. The sales and
marketing responsibilities of the Partnership are split between Bethlehem and
Inland at 75% and 25%, respectively. During fiscal 1995, Inland utilized only
17% of available line time. Inland is reviewing its future involvement in the
Partnership, and therefore, there is no assurance that Inland will utilize its
full 25% of available line time on a long-term basis. The Company believes that
any short-term disruption in volume that might be caused by a reduction in
Inland's line time requirements could be replaced by additional volume from
Bethlehem and other customers.
Bethlehem and Inland have rights to purchase all the facility's production
for the 12-year life of the Partnership. The Company's potential alternatives
upon expiration of the Partnership term in June 1998, include, among other
things, extension of the Partnership, purchase of the facility or sale of the
facility.
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Competition in the production and sale of electrogalvanized steel for the
automotive industry comes from other steel companies that, either directly or
through joint ventures, produce electrogalvanized steel on eight manufacturing
lines in the United States, including Inland's other facility. Limited
quantities of electrogalvanized steel also are imported from foreign steel
suppliers. The Company believes the Partnership's line is well-positioned to
serve the current and expected end-users of electrogalvanized steel. The
Company is unable to determine the effect, if any, on the market resulting from
the existence of excess capacity, the entrance of additional capacity, improved
galvanizing technology or the substitution of other materials.
International
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The Company believes that significant opportunities exist internationally,
particularly for the Company's disc brake noise damper products, Polycore
Composites, Specular+, and solar control window and safety film. As a percent
of net sales, direct export sales represented 8%, 7% and 8% in fiscal 1995, 1994
and 1993, respectively.
The Company has certain distribution agreements and licensing and royalty
agreements with agents and companies in Europe, Latin America, and the Far East
that cover disc brake noise dampers, Polycore Composites, and lighting products.
These agreements provide the Company with opportunities for market expansion in
those geographic areas.
Approximately 33% of the Company's solar control window films are sold to
export markets directly or through domestic distributors. The Company believes
that export shipments will continue to grow as emerging markets increasingly
realize the energy saving and ultraviolet light blocking benefits this product
provides.
The Company is pursuing a variety of other business relationships,
including direct sales, distribution agreements, licensing, and other forms of
partnering, to further increase its international sales and expand its
international presence.
Marketing and Sales
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The Company markets its laminates and composites and coil coating products,
services and technologies primarily through its in-house sales organization and
also through independent distributors, agents and licensees. The Company
focuses its sales efforts on manufacturers, but also sells to steel mills and
their intermediaries, metal service centers, and metal brokers. Bethlehem and
Inland are the primary marketing partners for electrogalvanized steel. The
Company sells its metallized and coated products primarily to domestic and
international
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distributors. All of the Company's selling activities are supported by
technical service departments that aid the customer in the choice of available
materials and their use in the customer's manufacturing process.
The Company estimates that customers in the transportation industry were
the end-users for approximately 52%, 52% and 49% of MSC's net sales in fiscal
1995, 1994 and 1993, respectively. The Company's direct sales to General Motors
were in excess of 5% during each of the last three fiscal years. In addition,
the Company believes that it has significant indirect sales to General Motors in
its coil coating and electrogalvanizing product groups. Due to concentration in
the automobile industry, the Company believes that sales to other individual
automobile companies, including indirect sales, are significant.
On June 30, 1993, the Company acquired the assets of a coil paint facility
owned by AK Steel Corporation ("AKS"), in Middletown, Ohio. The Company also
entered into a tolling agreement in which MSC agrees to provide AKS with coil
coating and other ancillary services from the facility of up to approximately
75% of the facility's capacity for 10 years. The balance of capacity is being
marketed by the Company's existing sales force and shifting production from
other MSC plants that, at times, reach their capacity. AKS represented 10% and
8% of MSC's net sales in fiscal 1995 and 1994, respectively.
The Company's backlog of orders as of February 28, 1995 was approximately
$43.6 million, all of which is expected to be filled during the remainder of the
current fiscal year. The Company's backlog was approximately $42.1 million as
of February 28, 1994.
MSC is generally not dependant on any one source for raw materials or
purchased components essential to its business, and it is believed that such raw
materials and components will be available in adequate quantities to meet
anticipated production schedules.
MSC believes that its business, in the aggregate, is not seasonal. Certain
of its products, however, sell more heavily in some seasons than in others.
Environmental Matters
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The Company is subject to federal, state and local environmental laws. As
a result of these laws, the Company has incurred, and will continue to incur in
the future, significant capital expenditures and operating costs and charges.
The Company is involved in two Superfund sites located in Gary and Kingsbury,
Indiana. Although the ultimate cost of the Company's share of necessary cleanup
expenses is not yet known, the Company believes that it is adequately reserved
for environmental matters given the
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information currently available. See Note 4 of the Notes to the Consolidated
Financial Statements entitled "Environmental and Legal Matters," on pages 30 and
31 of the annual report, which is incorporated by reference herein. The Company
cannot predict the impact of new or changed laws or regulations.
The Company believes it operates its facilities and conducts its business
in all material respects in accordance with all environmental laws presently
applicable to its facilities. The Company spent approximately $1.5 million in
fiscal 1995, and has budgeted approximately $1.5 million during fiscal 1996, for
maintenance or installation of environmental controls at the Elk Grove Village,
Illinois; Walbridge, Ohio; Morrisville, Pennsylvania; Middletown, Ohio; and San
Diego, California facilities. See Item 3 "Legal Proceedings" below.
Research and Development
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Management estimates that it spent approximately $5.4 million in fiscal
1995, $4.0 million in fiscal 1994 and $3.1 million in fiscal 1993 for product
and process development activities.
The Company believes that the reputation associated with the names "Pre
Finish Metals" and "Deposition Technologies" is important. While it also
considers its various patents, licenses and trademarks to be important, it does
not believe that the loss of any individual patent, license, or trademark would
have a material adverse effect upon its business.
Employees
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At February 28, 1995, the Company had 925 full-time employees. Of these,
approximately 687 were engaged in manufacturing, 117 in administrative and
clerical positions, 73 in marketing and sales, and 48 in process and product
development.
The employees at the San Diego, California and Walbridge, Ohio facilities
are not represented by a union. Hourly manufacturing employees at Elk Grove
Village, Illinois; Morrisville, Pennsylvania; and Middletown, Ohio, are covered
by separate union contracts expiring in February 1998, November 1995, and
October 1997, respectively. The Company believes that its relations with its
employees are good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of April 28, 1995 are as follows:
<TABLE>
<CAPTION>
Position and
Name Age Year First Elected
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<S> <C> <C>
G. Robert Evans...............63 Chairman and Chief
Executive Officer since
July 1991; previously
Chairman, President, and
Chief Executive Officer
since February 1991
Gerald G. Nadig...............50 President and Chief
Operating Officer, MSC
since July 1991;
previously President and
Chief Operating Officer,
PFM since 1990;
previously Executive Vice
President, PFM, since
1989
William H. Vrba...............63 Senior Vice President,
Chief Financial Officer,
and Secretary since July
1991
Frank D. Graziano.............62 Senior Vice President,
Technology since July
1991; previously Senior
Vice President, Research
and Development, PFM,
since 1990; previously
Senior Vice President,
Marketing, Research and
Development, PFM, since
1988
Anton F. Vitzthum.............60 Senior Vice President,
Manufacturing since
March, 1994; previously
Senior Vice President,
Operations, PFM since
1990; previously Vice
President, Manufacturing,
PFM since 1984
</TABLE>
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<TABLE>
<S> <C> <C>
Frank J. Lazowski, Jr. .......55 Vice President, Human
Resources since July
1991; previously Vice
President, Human
Resources PFM, since 1988
Robert J. Mataya..............52 Vice President, Business
Planning and Development
since July 1991;
previously Vice
President, Business
Planning and Development,
PFM, since 1990;
previously Vice
President, Marketing,
PFM, since 1986
James J. Waclawik, Sr. .......36 Vice President and
Controller since July
1991; previously Vice
President and Controller,
PFM, since 1989;
previously Controller,
PFM, since 1988
David A. Fletcher.............41 President and Chief
Operating Officer, DTI,
since September 1993;
previously Vice
President, Research and
Development, DTI, since
1989
</TABLE>
During the past five years, Messrs. Nadig, Graziano, Vitzthum,
Lazowski, Mataya, Waclawik, and Fletcher have been principally employed in
management capacities by the Company.
From July 1990 until joining the Company in 1991, Mr. Evans served as
President, Chief Executive Officer, and a director of Corporate Finance
Associates Illinois, Inc., a financial intermediary and consulting firm. From
February 1987 until January 1990, Mr. Evans served as President, Chief Executive
Officer, and a director of Bemrose Group USA, a British-owned holding company
engaged in value-added manufacturing and sale of products to the advertising
specialty industry. Prior to this, from August 1984 until January 1987, Mr.
Evans served as President, Chief Executive Officer, and a director of Allsteel,
Inc., a manufacturer of office furniture systems. Mr. Evans also serves as a
director of Consolidated Freightways, Inc., Fiberboard Corporation, Elco
Industries, Inc., and Swift Energy Company.
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From May 1990 until joining the Company in 1991, Mr. Vrba was
Executive Vice President of Corporate Finance Associates Illinois, Inc., a
financial intermediary and consulting firm. From June 1987 to December 1989,
Mr. Vrba was Vice President and Chief Financial Officer of Grabill Aerospace
Industries, Ltd., a manufacturer and supplier to the aerospace industry. Prior
to this, he was Executive Vice President at Farley Industries, a holding company
for diversified companies engaged in manufacturing and distribution of consumer
products and industrial goods, since 1981.
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ITEM 2. PROPERTIES
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The Company owns or leases facilities with an aggregate of
approximately 1,046,000 square feet of space. The Company considers all of such
facilities to be in good operating condition. The table below summarizes the
principal physical properties used by the Company in its operations.
<TABLE>
<CAPTION>
Approximate
Area in Lease Expiration
Location Square Feet (or Ownership)
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<S> <C> <C>
Elk Grove Village, Illinois
Plant No. 1 58,000 Owner
Elk Grove Village, Illinois
Plant No. 2 205,000 Owner
Elk Grove Village, Illinois
Plant No. 3 152,000 Owner
Morrisville, Pennsylvania 121,000 Owner
Middletown, Ohio 127,000 Owner
San Diego, California 65,000 June, 1997
Walbridge, Ohio 311,000 June, 2003/(1)/
Elk Grove Village, Illinois
Sales Office 3,000 June, 1995
Southfield, Michigan
Sales Office 4,000 March, 1999
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</TABLE>
(1) The lease is renewable, at the Company's option, for additional periods
totaling 25 years. Since April 1, 1986, this facility is subleased to the
Partnership until June 30, 1998 (see "Electrogalvanizing").
ITEM 3. LEGAL PROCEEDINGS
- - ------ -----------------
See Note 4 of the Notes to Consolidated Financial Statements entitled
"Environmental and Legal Matters," on pages 30 and 31 of the annual report,
which is incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------ ---------------------------------------------------
There were no matters submitted to the Company's security holders
during the fourth quarter of fiscal 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
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-----------------------------------------
The Company's Common Stock, $.02 par value, is listed on the New York
Stock Exchange under the symbol "MSC." The table below sets forth, by fiscal
quarter, the high and low sales prices of the Company's Common Stock during its
past two fiscal years.
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Quarter High Low
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<S> <C> <C> <C>
1995 1st 17 3/4 14 3/8
2nd 17 1/2 14 7/8
3rd 17 1/4 14 1/8
4th 17 1/8 13 3/4
Fiscal Fiscal
Year Quarter High Low
------ ------- ------ ------
1994 1st 12 3/8 10 5/8
2nd 14 3/8 12 1/4
3rd 17 3/8 14
4th 17 5/8 14 7/8
</TABLE>
There were 1,038 holders of record of the Company's Common Stock at
the close of business on April 28, 1995. MSC has paid no cash dividends other
than a nominal amount in lieu of fractional shares in connection with stock
dividends. Management currently anticipates that all earnings will be retained
for development of the Company's business. If business circumstances should
change, the Board of Directors may declare, and instruct the Company to pay,
cash dividends.
Effective on October 15, 1993 the Company's common shares were listed
on the New York Stock Exchange. Trading of MSC's stock on the American Stock
Exchange (where the Company's stock was traded since MSC became a public company
in 1984), ceased on October 15, 1993.
-15-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- - ------ -----------------------
Reference is made to the information found under the caption "Selected
Financial Data" on pages 36 and 37 of the annual report, which is incorporated
by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- - ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Reference is made to the information found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 22 through 25 of the annual report, which is incorporated
by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------ -------------------------------------------
(a) The Consolidated Statements of Income for the years ended
February 28, 1995, February 28, 1994 and February 28, 1993, Consolidated Balance
Sheets as of February 28, 1995 and February 28, 1994, Consolidated Statements of
Cash Flows for the years ended February 28, 1995, February 28, 1994 and February
28, 1993, Notes to Consolidated Financial Statements and the Report of
Independent Public Accountants, set forth on pages 26 through 35 and page 21 of
the annual report, are incorporated by reference herein.
(b) The unaudited selected quarterly financial data which is referred
to in Item 8(a) above and is set forth in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Summary of Quarterly Data (Unaudited)"
on page 35 of the annual report is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- - ------ ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------- --------------------------------------------------
Reference is made to the information found under the caption "Election
of Directors" on pages 2 and 3 of the Company's proxy statement for the 1995
annual meeting of shareholders (the "proxy statement"), all of which is
incorporated by reference herein, for information on the directors of the
Company. Reference is made to Part I of this report for information on the
executive officers of the Company.
-16-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- - -------- ----------------------
Reference is made to the information under the captions "Compensation
of Executive Officers", "Compensation and Organization Committee Report", "MSC
Performance Graph", "Employment and Other Agreements", and "Employee and Other
Plans" on pages 7 through 16 of the proxy statement, all of which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
- - ------- HOLDERS AND MANAGEMENT
----------------------------------------
Reference is made to the information set forth on pages 5 and 6 of the
proxy statement, all of which is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - ------- ----------------------------------------------
There were no relationships or related transactions requiring
disclosure in fiscal 1995.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-----------------------------------
-17-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- - ------- REPORTS ON FORM 8-K
--------------------------------------------
(A) FINANCIAL STATEMENTS AND SCHEDULES OF THE COMPANY
I Financial Statements of the Company. Incorporated herein by
-----------------------------------
reference to pages 26 through 35 and page 21 of the Company's
annual report.
(i) Consolidated Statements of Income for the years ended
February 28, 1995, 1994 and 1993
(ii) Consolidated Balance Sheets - February 28, 1995
and February 28, 1994
(iii) Consolidated Statements of Cash Flows for the
years ended February 28, 1995, 1994 and 1993
(iv) Notes to Consolidated Financial Statements
(v) Report of Independent Public Accountants
II Supplemental Schedules
----------------------
(i) Report of Independent Public Accountants with respect to
Supplemental Schedules to the Financial Statements
(ii) Schedule II - Reserve for Doubtful Accounts
and Deferred Tax Asset Valuation Allowance
All other schedules have been omitted, since the required information
is not significant, is included in the financial statements or the notes
thereto, or is not applicable.
-18-
<PAGE>
(C) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
2(a) Parent Agreement dated as of October 15, 1984, by and among
Bethlehem Steel Corporation, Inland Steel Company, Pre Finish
Metals Incorporated and Material Sciences Corporation.(1)
2(b) Partnership Agreement dated as of August 30, 1984, by and among
EGL Steel Inc., Inland Steel Electrogalvanizing Corporation and
Pre Finish Metals (EG) Incorporated.(1)
2(c) Amendment No. 1 to the Partnership Agreement dated as of August
30, 1984.(2)
2(d) Amendment No. 2 to the Partnership Agreement dated as of August
30, 1984.(2)
2(e) Operating Agreement dated as of October 15, 1984, by and between
Pre Finish Metals (EG) Incorporated and Walbridge Coatings, An
Illinois Partnership.(1)
2(f) Coating Agreement dated as of October 15, 1984, by and between
Bethlehem Steel Corporation and Walbridge Coatings, An Illinois
Partnership.(1)
2(g) Coating Agreement dated as of October 15, 1984, by and between
Inland Steel Company and Walbridge Coatings, An Illinois
Partnership.(1)
2(h) Amendments to Definitive Agreements dated as of March 31, 1986,
among EGL Steel Inc., Inland Steel Electrogalvanizing
Corporation, Pre Finish Metals (EG) Incorporated, Bethlehem Steel
Corporation, Inland Steel Company, Pre Finish Metals Incorporated
and Material Sciences Corporation.(6)
2(i) Further Amendments to Definitive Agreements dated as of July 24,
1986, among EGL Steel Inc., Inland Steel Electrogalvanizing
Corporation, Pre Finish Metals (EG) Incorporated, Bethlehem Steel
Corporation, Inland Steel Company, Inland Steel Industries, Inc.,
Pre Finish Metals Incorporated and Material Sciences
Corporation.(3)
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
2(j) Further Amendments to Definitive Agreements dated as of April 23,
1992, among EGL Steel Inc., Inland Steel Electrogalvanizing
Corporation, Pre Finish Metals (EG) Incorporated, Bethlehem Steel
Corporation, Inland Steel Company, Inland Steel Industries, Inc.,
Pre Finish Metals Incorporated and Material Sciences
Corporation.(7)
3(a) Registrant's Certificate of Incorporation, as amended.(1)
3(b) Amendment to Registrant's Certificate of Incorporation.(2)
3(c) Amendment to Registrant's Certificate of Incorporation.(4)
3(d) Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock.(4)
3(e) Registrant's By-laws, as amended.(6)
4(a) Form of Subordinated Convertible Notes due January 29, 1996 and
Terms and Conditions Applicable Thereto.(6)
4(b) Credit Agreement dated as of September 1, 1994, between Material
Sciences Corporation and Bank of America Illinois.(5)
4(c) First Amendment to Rights Agreement dated as of April 21, 1994 by
and between Material Sciences Corporation and Mellon Securities
Trust Company.(9)
There are omitted certain instruments with respect to long-term
debt, the total amount of securities authorized under each of
which does not exceed 10% of the total assets of the registrant
and its subsidiaries on a consolidated basis. A copy of each such
instrument will be furnished to the Commission upon request.
9 Form of Voting Trust Agreement dated January 29, 1986, among
Material Sciences Corporation, William N. Guthrie, Richard L.
Burns, Joyce Burns, O. Morris Sievert, and D. W. Watt.(6)
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
10(a) Material Sciences Corporation Stock Purchase Plan. (1)
10(b) Material Sciences Corporation Supplemental Pension Plan.(1)
10(c) Material Sciences Corporation Employee Stock Purchase Plan.(6)
10(d) Material Sciences Corporation 1985 Stock Option Plan for Key
Employees.(6)
10(e) Material Sciences Corporation 1985 Stock Option Plan for
Directors.(6)
10(f) Material Sciences Corporation 1992 Omnibus Stock Awards Plan for
Key Employees.(7)
10(g) Employment Agreement effective February 27, 1991, between the
Company and G. Robert Evans.(6)
10(h) Material Sciences Corporation 1991 Stock Option Plan for
Directors.(6)
10(i) Material Sciences Corporation Directors Deferred Compensation
Plan.(6)
10(j) Deferred Compensation Plan of Material Sciences Corporation and
Certain Participating Subsidiaries.(6)
10(k) Retirement Agreement dated as of February 27, 1991, between
Material Sciences Corporation and William N. Guthrie.(6)
10(l) Letter Agreement dated March 4, 1991, between Material Sciences
Corporation and James R. Deters, regarding termination of
employment.(6)
10(m) Letter Agreement dated March 1, 1988, between Material Sciences
Corporation and James R. Deters, regarding termination of
employment, together with Non-Qualified Stock Option Agreement of
same date between same parties.(6)
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
10(n) Lease dated March 1, 1972, between Exchange National Bank, as
trustee under Trust Nos. 26027 and 26091, and Pre Finish Metals
Incorporated, including First Amendment thereto dated July 10,
1972 and Second Amendment thereto dated August 9, 1973, relating
to Elk Grove Village, Illinois facility.(1)
10(o) Lease and Agreement dated as of December 1, 1980, between Line 6
Corp. and Pre Finish Metals Incorporated, relating to Walbridge,
Ohio facility.(1)
10(p) First Amendment to Lease and Agreement dated as of May 30, 1986,
between Corporate Property Associates and Corporate Property
Associates 2 and Pre Finish Metals Incorporated.(3)
10(q) Sublease dated as of May 30, 1986, between Pre Finish Metals
Incorporated and Walbridge Coatings, An Illinois Partnership.(3)
10(r) Lease Guaranty dated as of May 30, 1986, from Material Sciences
Corporation to Corporate Property Associates and Corporate
Property Associates 2.(3)
10(s) Note Purchase Agreement dated as of May 30, 1986, between
Material Sciences Corporation and Creditanstalt-Bankverein (New
York Branch).(3)
10(t) Agreement dated as of May 30, 1986, between Material Sciences
Corporation and Corporate Property Associates and Corporate
Property Associates 2.(3)
10(u) Term Loan Agreement dated as of July 23, 1986, among Walbridge
Coatings, An Illinois Partnership, Creditanstalt-Bankverein (New
York Branch) and The Toledo Trust Company, including the related
guaranties by Material Sciences Corporation and Pre Finish Metals
Incorporated.(3)
10(v) Amendment No. 1 to Term Loan Agreement dated as of March 31,
1987, among Walbridge Coatings, An Illinois Partnership,
Creditanstalt-Bankverein (New York Branch) and The Toledo Trust
Company.(3)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
10(w) Amended and Restated Credit Facility Agreement dated as of July
23, 1986, between Walbridge Coatings, An Illinois Partnership,
and Creditanstalt-Bankverein, including the related guaranties by
Material Sciences Corporation and Pre Finish Metals
Incorporated.(3)
10(x) Amendment and Consent Agreement dated as of April 23, 1992, among
Walbridge Coatings, An Illinois Partnership, Bethlehem Steel
Corporation, EGL Steel, Inc., Inland Steel Industries, Inc.,
Inland Steel Company, Inland Steel Electrogalvanizing
Corporation, Material Sciences Corporation, Pre Finish Metals
Incorporated, Pre Finish Metals (EG) Incorporated, and
Creditanstalt-Bankverein, amending the Term Loan Agreement dated
as of July 23, 1986, as amended on March 31, 1987, and amending
the Amended and Restated Credit Facility Agreement dated as of
July 23, 1986, including the related guaranties by Material
Sciences Corporation and Pre Finish Metals Incorporated.(7)
10(y) Form of Standstill Agreement dated as of January 29, 1986, among
Material Sciences Corporation, Richard L. Burns and Joyce
Burns.(6)
10(z) Rights Agreement dated as of June 17, 1986, between Material
Sciences Corporation and Continental Illinois National Bank and
Trust Company of Chicago.(6)
10(aa) Form of Indemnification Agreement between Material Sciences
Corporation and each of its officers and directors.(7)
10(bb) Supplemental Retirement Agreement dated as of December 28, 1992
between Material Sciences Corporation and William H. Vrba.(8)
10(cc) Restricted Stock Agreement dated as of May 20, 1991 between
Material Sciences Corporation and William H. Vrba.(8)
10(dd) Letter Agreement dated as of May 8, 1991 between Material
Sciences Corporation and William H. Vrba. (8)
11 Statement re: computation of per share earnings.
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ------- ----------------------
<S> <C>
13 Annual Report to Shareholders. (Except as specifically
incorporated herein by reference, this document shall not be
deemed "filed" as a part of this Form 10-K Annual Report.)
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.(10)
_______________
</TABLE>
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 2-93414), which was declared effective on
November 27, 1984.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-00828), which was filed on October 11, 1985.
(3) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1989 (File No. 1-8803).
(4) Incorporated by reference to the Registrant's Form 8-A dated June 17, 1986
(File No. 1-8803).
(5) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
for the Quarter Ended August 31, 1994 (File No. 1-8803).
(6) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1991 (File No. 1-8803).
(7) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 29, 1992 (File No. 1-8803).
(8) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1993 (File No. 1-8803).
(9) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1994 (File No. 1-8803).
(10) Appears only in the electronic filing of this report with the Securities
and Exchange Commission.
-24-
<PAGE>
(D) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-----------------------------------
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MATERIAL SCIENCES CORPORATION
By: /s/ G. Robert Evans
----------------------------------
G. Robert Evans
Chairman and Chief Executive Officer
Date: May 26, 1995
Pursuant to the requirements of the Securities Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
May 26, 1995.
Signature Title
--------- -----
/s/G. Robert Evans Chairman and Chief Executive
- - ------------------------- Officer, and Director (Principal
G. Robert Evans Executive Officer)
/s/William H. Vrba Senior Vice President, Chief
- - ------------------------- Financial Officer, and Secretary
William H. Vrba (Principal Financial Officer)
/s/James J. Waclawik, Sr. Vice President and Controller
- - ------------------------- (Principal Accounting Officer)
James J. Waclawik, Sr.
/s/Jerome B. Cohen Director
- - -------------------------
Jerome B. Cohen
/s/Roxanne J. Decyk Director
- - -------------------------
Roxanne J. Decyk
/s/Eugene W. Emmerich Director
- - -------------------------
Eugene W. Emmerich
/s/E. F. Heizer, Jr. Director
- - -------------------------
E. F. Heizer, Jr.
Director
- - -------------------------
J. Frank Leach
/s/Irwin P. Pochter Director
- - -------------------------
Irwin P. Pochter
-26-
<PAGE>
INDEX TO EXHIBITS
MATERIAL SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- - ------- REPORTS ON FORM 8-K
--------------------------------------------
(A) FINANCIAL STATEMENTS AND SCHEDULES OF THE COMPANY
I Financial Statements of the Company. Incorporated herein by
-----------------------------------
reference to pages 26 through 35 and page 21 of the Company's
annual report.
(i) Consolidated Statements of Income for the years ended
February 28, 1995, 1994 and 1993
(ii) Consolidated Balance Sheets - February 28, 1995 and
February 28, 1994
(iii) Consolidated Statements of Cash Flows for the years ended
February 28, 1995, 1994 and 1993
(iv) Notes to Consolidated Financial Statements
(v) Report of Independent Public Accountants
II Supplemental Schedules
----------------------
(i) Report of Independent Public Accountants with respect to
Supplemental Schedules to the Financial Statements
(ii) Schedule II - Reserve for Doubtful Accounts and Deferred
Tax Asset Valuation Allowance
All other schedules have been omitted, since the required information
is not significant, is included in the financial statements or the notes
thereto, or is not applicable.
-27-
<PAGE>
MATERIAL SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
2(a) Parent Agreement dated as of
October 15, 1984, by and among
Bethlehem Steel Corporation, Inland
Steel Company, Pre Finish Metals
Incorporated and Material Sciences
Corporation.(1)
2(b) Partnership Agreement dated as of
August 30, 1984, by and among EGL
Steel Inc., Inland Steel
Electrogalvanizing Corporation and
Pre Finish Metals (EG)
Incorporated.(1)
2(c) Amendment No. 1 to the Partnership
Agreement dated as of August 30,
1984.(2)
2(d) Amendment No. 2 to the Partnership
Agreement dated as of August 30,
1984.(2)
2(e) Operating Agreement dated as of
October 15, 1984, by and between Pre
Finish Metals (EG) Incorporated and
Walbridge Coatings, An Illinois
Partnership.(1)
2(f) Coating Agreement dated as of
October 15, 1984, by and between
Bethlehem Steel Corporation and
Walbridge Coatings, An Illinois
Partnership.(1)
2(g) Coating Agreement dated as of
October 15, 1984, by and between
Inland Steel Company and Walbridge
Coatings, An Illinois Partnership.(1)
</TABLE>
- - ---------
* This information appears only in the manually signed original
of the Form 10-K.
-28-
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
2(h) Amendments to Definitive Agreements
dated as of March 31, 1986, among EGL
Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre
Finish Metals (EG) Incorporated,
Bethlehem Steel Corporation, Inland
Steel Company, Pre Finish Metals
Incorporated and Material Sciences
Corporation.(6)
2(i) Further Amendments to Definitive
Agreements dated as of July 24, 1986,
among EGL Steel Inc., Inland Steel
Electrogalvanizing Corporation, Pre
Finish Metals (EG) Incorporated,
Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel
Industries, Inc.,Pre Finish Metals
Incorporated and Material Sciences
Corporation.(3)
2(j) Further Amendments to Definitive
Agreements dated as of April 23,
1992, among EGL Steel Inc., Inland
Steel Electrogalvanizing Corporation,
Pre Finish Metals (EG) Incorporated,
Bethlehem Steel Corporation, Inland
Steel Company, Inland Steel
Industries, Inc., Pre Finish Metals
Incorporated and Material Sciences
Corporation.(7)
3(a) Registrant's Certificate of
Incorporation, as amended.(1)
3(b) Amendment to Registrant's Certificate
of Incorporation.(2)
3(c) Amendment to Registrant's Certificate
of Incorporation.(4)
3(d) Certificate of Designation,
Preferences and Rights of Series A
Junior Participating Preferred
Stock.(4)
3(e) Registrant's By-laws, as amended.(6)
4(a) Form of Subordinated Convertible
Notes due January 29, 1996 and Terms
and Conditions Applicable Thereto.(6)
4(b) Credit Agreement dated as of
September 1, 1994 between Material
Sciences Corporation and Bank of
America Illinois.(5)
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
4(c) First Amendment to Rights Agreement
dated as of April 21, 1994 by and
between Material Sciences Corporation
and Mellon Securities Trust
Company.(9)
There are omitted certain instruments
with respect to long-term debt, the
total amount of securities authorized
under each of which does not exceed
10% of the total assets of the
registrant and its subsidiaries on a
consolidated basis. A copy of each
such instrument will be furnished to
the Commission upon request.
9 Form of Voting Trust Agreement dated
January 29, 1986, among Material
Sciences Corporation, William N.
Guthrie, Richard L. Burns, Joyce
Burns, O. Morris Sievert, and D. W.
Watt.(6)
10(a) Material Sciences Corporation Stock
Purchase Plan. (1)
10(b) Material Sciences Corporation Supple-
mental Pension Plan.(1)
10(c) Material Sciences Corporation
Employee Stock Purchase Plan.(6)
10(d) Material Sciences Corporation 1985
Stock Option Plan for Key
Employees.(6)
10(e) Material Sciences Corporation 1985
Stock Option Plan for Directors.(6)
10(f) Material Sciences Corporation 1992
Omnibus Stock Awards Plan for Key
Employees(7).
10(g) Employment Agreement effective
February 27, 1991, between the
Company and G. Robert Evans.(6)
10(h) Material Sciences Corporation 1991
Stock Option Plan for Directors.(6)
10(i) Material Sciences Corporation
Directors Deferred Compensation
Plan.(6)
10(j) Deferred Compensation Plan of
Material Sciences Corporation and
Certain Participating
Subsidiaries.(6)
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
10(k) Retirement Agreement dated as of
February 27, 1991, between Material
Sciences Corporation and William N.
Guthrie.(6)
10(l) Letter Agreement dated March 4, 1991,
between Material Sciences Corporation
and James R. Deters, regarding
termination of employment.(6)
10(m) Letter Agreement dated March 1, 1988,
between Material Sciences Corporation
and James R. Deters, regarding
termination of employment, together
with Non-Qualified Stock Option
Agreement of same date between same
parties.(6)
10(n) Lease dated March 1, 1972, between
Exchange National Bank, as trustee
under Trust Nos. 26027 and 26091, and
Pre Finish Metals Incorporated,
including First Amendment thereto
dated July 10, 1972 and Second
Amendment thereto dated August 9,
1973, relating to Elk Grove Village,
Illinois facility.(1)
10(o) Lease and Agreement dated as of
December 1, 1980, between Line 6
Corp. and Pre Finish Metals
Incorporated, relating to Walbridge,
Ohio facility.(1)
10(p) First Amendment to Lease and
Agreement dated as of May 30, 1986,
between Corporate Property Associates
and Corporate Property Associates 2
and Pre Finish Metals
Incorporated.(3)
10(q) Sublease dated as of May 30, 1986,
between Pre Finish Metals
Incorporated and Walbridge Coatings,
An Illinois Partnership.(3)
10(r) Lease Guaranty dated as of May 30,
1986, from Material Sciences
Corporation to Corporate Property
Associates and Corporate Property
Associates 2.(3)
10(s) Note Purchase Agreement dated as of
May 30, 1986, between Material
Sciences Corporation and
Creditanstalt-Bankverein (New York
Branch).(3)
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
10(t) Agreement dated as of May 30, 1986,
between Material Sciences Corporation
and Corporate Property Associates and
Corporate Property Associates 2.(3)
10(u) Term Loan Agreement dated as of July
23, 1986, among Walbridge Coatings,
An Illinois Partnership,
Creditanstalt-Bankverein (New York
Branch) and The Toledo Trust Company,
including the related guaranties by
Material Sciences Corporation and Pre
Finish Metals Incorporated.(3)
10(v) Amendment No. 1 to Term Loan
Agreement dated as of March 31, 1987,
among Walbridge Coatings, An Illinois
Partnership, Creditanstalt-Bankverein
(New York Branch) and The Toledo
Trust Company.(3)
10(w) Amended and Restated Credit Facility
Agreement dated as of July 23, 1986,
between Walbridge Coatings, An
Illinois Partnership, and
Creditanstalt-Bankverein, including
the related guaranties by Material
Sciences Corporation and Pre Finish
Metals Incorporated.(3)
10(x) Amendment and Consent Agreement dated
as of April 23, 1992, among Walbridge
Coatings, An Illinois Partnership,
Bethlehem Steel Corporation, EGL
Steel, Inc., Inland Steel Industries,
Inc., Inland Steel Company, Inland
Steel Electrogalvanizing Corporation,
Material Sciences Corporation, Pre
Finish Metals Incorporated, Pre
Finish Metals (EG) Incorporated, and
Creditanstalt-Bankverein, amending
the Term Loan Agreement dated as of
July 23, 1986, as amended on March
31, 1987, and amending the Amended
and Restated Credit Facility
Agreement dated as of July 23, 1986,
including the related guaranties by
Material Sciences Corporation and Pre
Finish Metals Incorporated.(7)
10(y) Form of Standstill Agreement dated as
of January 29, 1986, among Material
Sciences Corporation, Richard L.
Burns and Joyce Burns.(6)
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page*
- - --------- -------------------------------------- ------------
<S> <C> <C>
10(z) Rights Agreement dated as of June 17,
1986, between Material Sciences
Corporation and Continental Illinois
National Bank and Trust Company of
Chicago.(6)
10(aa) Form of Indemnification Agreement
between the Company and each of its
officers and directors.(7)
10(bb) Supplemental Retirement Agreement
dated as of December 28, 1992 between
Material Sciences Corporation and
William H. Vrba.(8)
10(cc) Restricted Stock Agreement dated as
of May 20, 1991 between Material
Sciences Corporation and William H.
Vrba.(8)
10(dd) Letter Agreement dated as of May 8,
1991 between Material Sciences
Corporation and William H. Vrba.(8)
11 Statement re: computation of per
share earnings.
13 Annual Report to Shareholders.
(Except as specifically incorporated
herein by reference, this document
shall not be deemed "filed" as a part
of this Form 10-K Annual Report.)
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.(10)
</TABLE>
____________________
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 2-93414), which was declared effective on
November 27, 1984.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-00828), which was filed on October 11, 1985.
(3) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1989 (File No. 1-8803).
(4) Incorporated by reference to the Registrant's Form 8-A dated June 17, 1986
(File No. 1-8803).
-33-
<PAGE>
(5) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
for the Quarter Ended August 31, 1994 (File No. 1-8803).
(6) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1991 (File No. 1-8803).
(7) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 29, 1992 (File No. 1-8803).
(8) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1993 (File No. 1-8803).
(9) Incorporated by reference to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended February 28, 1994 (File No. 1-8803).
(10) Appears only in the electronic filing of this report with the Securities
and Exchange Commission.
-34-
<PAGE>
MATERIAL SCIENCES CORPORATION
SUPPLEMENTAL SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO SUPPLEMENTAL SCHEDULES
TO THE FINANCIAL STATEMENTS
To Material Sciences Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in the Material
Sciences Corporation 1995 Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated April 20,
1995. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental financial
statement schedule is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The supplemental financial statement schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
April 20, 1995
-35-
<PAGE>
SCHEDULE II
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
RESERVE FOR DOUBTFUL ACCOUNTS AND DEFERRED TAX ASSET VALUATION ALLOWANCE
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged to Charged Deductions Balance
beginning costs and to other from at end
of year expenses accounts reserve of year
---------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
1993
- - ------------------------
Doubtful Accounts $2,672 $ 638 $ - $ 769 $2,541
Deferred Tax Asset
Valuation Allowance 1,620 - - - 1,620
------ ------ ------ ------ ------
Total $4,292 $ 638 $ - $ 769 $4,161
====== ====== ====== ====== ======
1994
- - ------------------------
Doubtful Accounts $2,541 $1,333 $ - $ 372 $3,502
Deferred Tax Asset
Valuation Allowance 1,620 - - - 1,620
------ ------ ------ ------ ------
Total $4,161 $1,333 $ - $ 372 $5,122
====== ====== ====== ====== ======
1995
- - ------------------------
Doubtful Accounts $3,502 $1,025 $ - $ 899 $3,628
Deferred Tax Asset
Valuation Allowance 1,620 - - 1,620 -
------ ------ ------ ------ ------
Total $5,122 $1,025 $ - $2,519 $3,628
====== ====== ====== ====== ======
</TABLE>
36
<PAGE>
EXHIBIT 11
Statement re: Computation of Per Share Earnings
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
----------------------------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
FOR EACH OF THE FIVE YEARS ENDING FEBRUARY 28 OR 29,
----------------------------------------------------
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Income $ 16,740 $ 11,802 $ 7,617 $ 7,141 $ 4,688
=========== =========== =========== =========== ===========
Weighted average shares
outstanding during the
year 14,851,000 14,742,600 13,177,470 11,215,125 11,106,012
Net addition to shares
outstanding under the
treasury stock method
due to stock options
and restricted stock 389,898 315,021 206,130 43,407 0
----------- ----------- ----------- ----------- -----------
Shares outstanding used
in computing earnings
per share 15,240,898 15,057,621 13,383,600 11,258,532 11,106,012
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Exhibit 13
Annual Report to Shareholders
(Except as specifically incorporated
herein by reference, this document
shall not be deemed "filed" as a
part of this Form 10-K Annual Report.)
| Responsibility for
| Financial Statements
- - ------------------------------------------------------------------------------
William H. Vrba,
Senior Vice
President,
Chief Financial
Officer, and
Secretary
[PHOTO]
Material Sciences Corporation's senior management is responsible for the
information presented in this report. In fulfilling this responsibility, we make
informed judgments and estimates conforming with generally accepted accounting
principles, and believe the financial statements present fairly, in all material
respects, the Company's results of operations, cash flows, and financial
position for the periods under review.
The Company's system of internal accounting controls provides reasonable
assurance that assets are safeguarded, that transactions are executed in
accordance with management's authorization and are properly recorded, that
material errors are prevented or detected within a timely period, and that
records are sufficient to produce reliable financial reports. In designing and
implementing internal controls and procedures, management recognizes that errors
or irregularities nevertheless may occur. Further, estimates and judgments are
necessary to evaluate the relative costs and benefits of such controls and
procedures.
The financial statements have been audited by Arthur Andersen LLP, the
Company's independent public accountants, whose report appears to the right. Our
auditor's responsibility is to examine the financial statements in accordance
with generally accepted auditing standards and to express their opinion on the
fairness of the presentation of the statements.
Our audit committee, comprised entirely of outside directors of Material
Sciences Corporation, is identified later in this report. The committee meets at
least twice a year with the Company's management and independent public
accountants to review financial results, external audit plans, recommendations,
and subsequent responses by management. To guarantee independence, the audit
committee and the independent public accountants have unrestricted access to
each other, with or without the presence of management representatives.
G. Robert Evans
Chairman and Chief Executive Officer
William H. Vrba
Senior Vice President,
Chief Financial Officer, and Secretary
| Report of Independent
| Public Accountants
- - ------------------------------------------------------------------------------
To the Shareholders and Board of Directors of Material Sciences Corporation:
We have audited the accompanying consolidated balance sheets of Material
Sciences Corporation (a Delaware Corporation) and subsidiaries as of February
28, 1995, and February 28, 1994, and the related consolidated statements of
income and cash flows for each of the three fiscal years in the period ended
February 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Sciences Corporation
as of February 28, 1995, and February 28, 1994, and the results of its
operations and its cash flows for each of the three fiscal years in the period
ended February 28, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 11 to the consolidated financial statements,
effective March 1, 1992, the Company changed its methods of accounting for post-
retirement benefits other than pensions and income taxes.
Arthur Andersen LLP
Chicago, Illinois,
April 20, 1995
MATERIAL SCIENCES CORPORATION 21
<PAGE>
| Management's Discussion and Analysis
| of Financial Condition and Results of Operations (In thousands)
- - ------------------------------------------------------------------------------
Material Sciences Corporation and subsidiaries
Material Sciences Corporation ("MSC" or "Company") operates in one business
segment comprised of the following four product groups: laminates and
composites, metallizing and coating, coil coating, and electrogalvanizing.
The following tables provide a summary of net sales and the percent of net
sales of MSC's product groups; and a summary of MSC's results of operations as a
percent of net sales.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Fiscal Years Ended February 28,
------------------------------------------------------------
Net Sales Summary 1995 1994 1993
- - -------------------------------------------------------------------- ------------------ ------------------ ------------------
PRODUCT GROUP DOLLARS PERCENT Dollars Percent Dollars Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Laminates and Composites............................................ $ 57,722 25% $ 46,266 25% $ 40,008 26%
Metallizing and Coating............................................. 19,134 8% 16,979 9% 19,390 12%
Coil Coating........................................................ 101,206 45% 78,320 42% 54,326 35%
Electrogalvanizing.................................................. 49,596 22% 46,136 24% 42,506 27%
-------- ------- -------- ------- -------- -------
$227,658 100% $187,701 100% $156,230 100%
======== ======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended February 28,
-------------------------------
Results of Operations 1995 1994 1993
- - -------------------------------------------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net Sales........................................................................................ 100.0% 100.0% 100.0%
Cost of Sales.................................................................................... 72.7 75.6 75.1
------ ------ ------
Gross Profit..................................................................................... 27.3% 24.4% 24.9%
Selling, General and Administrative Expenses..................................................... 15.7 14.6 16.0
------ ------ ------
Income from Operations........................................................................... 11.6% 9.8% 8.9%
Total Other Income, Net.......................................................................... (0.3) (0.3) (0.1)
------ ------ ------
Income Before Income Taxes and Cumulative Effect of Accounting Changes........................... 11.9% 10.1% 9.0%
Income Taxes..................................................................................... 4.6 3.8 3.3
------ ------ ------
Income Before Cumulative Effect of Accounting Changes............................................ 7.3% 6.3% 5.7%
Cumulative Effect of Accounting Changes, Net(1).................................................. -- -- 0.8
------ ------ ------
Net Income....................................................................................... 7.3% 6.3% 4.9%
====== ====== ======
</TABLE>
(1) MSC adopted Statement of Financial Accounting Standards (SFAS) No. 106
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions"
and SFAS No. 109 "Accounting for Income Taxes" during fiscal 1993.
Fiscal 1995 Compared with Fiscal 1994
- - -------------------------------------------------------------------------------
NET SALES
Net sales in fiscal 1995 grew 21.3% over fiscal 1994. Sales of laminates and
composites grew 24.8%; metallizing and coating 12.7%; coil coating 29.2%; and
electrogalvanizing 7.5%. Included in the above are coil coating sales from the
June 30, 1993 acquisition of the coil coating facility from AK Steel Corporation
in Middletown, Ohio.
Laminates and Composites
Fiscal 1995 net sales of laminates and composites grew 24.8% to $57,722 from
$46,266 in fiscal 1994. Sales of Polycore Composites generated a significant
increase over the previous year, boosted by new product applications and market
expansion activities in both automotive and non-automotive end uses. In the
high-reflective lighting fixture market, Specular+ sales increased from fiscal
1994 due to increased worldwide demand for energy efficient lighting. Sales of
disc brake noise damper materials were up from the previous fiscal year as a
result of increased aftermarket demand as well as a steady increase in original
equipment manufacturer ("OEM") sales during the year.
Metallizing and Coating
Metallizing and Coating net sales increased 12.7% to $19,134 in fiscal 1995 from
$16,979 in fiscal 1994 due primarily to increased domestic and international
demand for solar control window and safety film. Increased productivity and
quality improvements also contributed to the increase in sales over the prior
fiscal year as MSC was better able to meet seasonable demand.
22 MATERIAL SCIENCES CORPORATION
<PAGE>
Coil Coating
Coil coating net sales grew 29.2% in fiscal 1995 to $101,206 from $78,320 in the
prior fiscal year. The broad increase in sales was due largely to expanded
market coverage and new product introductions. MSC benefited from a strong
economy but also out performed the economy due to the conversion of new
prepainted metals from post-manufacturing painting applications. The biggest
sales advances came from heating and air conditioning, truck trailer, fuel tank,
and lighting areas.
A portion of this coil coating sales increase is attributable to MSC's June
1993 acquisition of the Middletown coil coating facility. Comparable sales in
this product group were up approximately 14.8% from the prior fiscal year.
During the fourth quarter of fiscal 1995, the Middletown facility was shut down
for 52 days for planned upgrading and expansion of that facility. The shutdown
decreased sales and earnings in the fourth quarter of fiscal 1995 but is
expected to positively impact future periods due to anticipated increases in
capacity and efficiency. During the fourth quarter of fiscal 1996, the
Middletown facility is scheduled for the second of a two-phase, planned shutdown
(approximately four weeks) to further increase production capabilities and
capacity.
Electrogalvanizing
MSC participates in the electrogalvanizing market through Walbridge Coatings
(the "Partnership"), a partnership among subsidiaries of MSC, Bethlehem Steel
Corporation ("Bethlehem") and Inland Steel Industries, Inc. ("Inland"). MSC's
net sales for electrogalvanizing consist of various fees charged to the
Partnership for operating the facility. Bethlehem and Inland are primarily
responsible for the sales and marketing activities of the Partnership. The
Company's primary financial benefits from the Partnership are the revenues
billed to Walbridge Coatings for operating the facility. These revenues
represent 22%, 24% and 27% of the Company's net sales in fiscal 1995, 1994 and
1993, respectively. The profitability for operating the facility is comparable
to the Company's overall operating results. Under the equity method of
accounting, the Company includes its portion of the Partnership net loss in
Equity in Results of Partnership shown in the Consolidated Statements of Income.
The amounts do not directly correlate to the Company's 50% ownership interest
due to contractual allocation requirements of the Partnership agreement.
MSC's electrogalvanizing sales increased 7.5% to $49,596 in fiscal 1995 from
$46,136 in fiscal 1994, while electrogalvanizing volume increased 2.6% to
427,133 tons in fiscal 1995 from 416,214 tons in the prior fiscal year. The
increase in sales and volume over the previous fiscal year resulted from a
strong demand for new autos and trucks, plus a continuing shift to higher value-
added electrogalvanized and coil coated materials. These higher value-added
sales (principally zinc-nickel with a coil coated topcoat) represented 6.5% of
electrogalvanizing sales in fiscal 1995 up from 5.3% in fiscal 1994.
The sales and marketing responsibilities of the Partnership are split between
Bethlehem and Inland at 75% and 25%, respectively. During fiscal 1995, Inland
utilized only 17% of available production line time rather than its full 25%.
Bethlehem and other customers utilized this additional available line time.
Inland is reviewing its future involvement in the Partnership, and therefore,
there is no assurance that Inland will utilize its full 25% of available line
time on a long-term basis. The Company believes that any short-term disruption
in volume that might be caused by a reduction in Inland's line time requirements
could be replaced by additional volume from Bethlehem and other customers.
[CHART APPEARS HERE]
Gross Profit Percentage
93 94 95
----- ----- -----
24.9% 24.4% 27.3%
GROSS PROFIT
MSC's gross profit percentage increased to 27.3% in fiscal 1995 from 24.4% in
fiscal 1994. This improvement was due to increasing higher value-added product
mix, pricing, higher line utilization and improving manufacturing efficiencies.
Significant capital expenditures have resulted in increased yields and line
speeds as well as reductions in set-up time and unscheduled downtime.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased to 15.7% of
sales in fiscal 1995 from 14.6% in fiscal 1994. This increase was primarily due
to increased expenditures for strategic purposes such as high-growth product
marketing, research and development, and international marketing efforts, as
well as some non-recurring increases in other administrative expenses. This
trend of increased strategic expenditures over the prior year is expected to
continue as MSC utilizes its resources to take advantage of market
opportunities. However, SG&A expenses, as a percentage of sales, should not
increase over the fiscal 1995 level as this investment continues to generate
incremental sales and profits.
TOTAL OTHER INCOME, NET AND INCOME TAXES
Total other income, net was income of $.7 million in fiscal 1995 and fiscal
1994. Decreased interest income, due to lower amounts of cash investments, was
more than offset by a reduction in interest expense (from lower debt levels),
equity in results of partnership and other, net. MSC's effective tax rate for
fiscal 1995 was approximately 38.5% compared with 38.0% in the prior year. In
fiscal 1996, MSC's effective tax rate is expected to remain at 38.5% as MSC
takes advantage of research and development ("R&D") tax credits for its
increasing investment in R&D and as a result of the creation of a foreign sales
corporation.
MATERIAL SCIENCES CORPORATION 23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - ------------------------------------------------------------------------------
Material Sciences Corporation and subsidiaries
Fiscal 1994 Compared with Fiscal 1993
NET SALES
Net sales in fiscal 1994 grew 20.1% over net sales in fiscal 1993. Sales of
laminates and composites grew 15.6%; coil coating 44.2%; and electrogalvanizing
8.5%; while metallizing and coating sales were down 12.4%. Included in the above
is eight months of coil coating sales from the Middletown acquisition.
Laminates and Composites
Fiscal 1994 net sales of laminates and composites grew 15.6% to $46,266 from
$40,008 in fiscal 1993. Polycore Composites generated increases over fiscal 1993
as sales were boosted by new parts as well as increased volumes of existing
applications. Sales of disc brake noise damper materials were up from fiscal
1993 as MSC increased aftermarket sales. Specular+ sales declined from fiscal
1993 levels due to lower OEM volumes and the temporary loss of a major retrofit
customer regained late in fiscal 1994.
Metallizing and Coating
Metallizing and Coating net sales fell 12.4% to $16,979 in fiscal 1994 from
$19,390 in fiscal 1993 due primarily to manufacturing problems associated with
the Company's solar control window film coating and laminating equipment. The
Company shut down this equipment in the fourth quarter of fiscal 1994 for major
capital improvements.
Coil Coating
Coil coating net sales grew 44.2% to $78,320 in fiscal 1994 from $54,326 in
fiscal 1993. Sales increases were experienced in the building products,
lighting, and furniture and fixture markets. The Middletown facility accounted
for approximately $16.3 million in net sales in its initial eight months of
operation in fiscal 1994. The increase in coil coating sales over fiscal 1993,
excluding the Middletown sales impact, can be attributed to the conversion of
new customers to prepainted metals from post-manufacturing painting applications
and an improved economy.
Electrogalvanizing
MSC's electrogalvanizing sales increased 8.5% to $46,136 in fiscal 1994 from
$42,506 in fiscal 1993 while electrogalvanizing volume increased 6.2% to 416,214
tons in fiscal 1994 from 392,062 tons in fiscal 1993. The increase in sales and
volume over fiscal 1993 resulted from a strong demand for new autos and trucks,
plus increased demand for higher value-added materials, which represented 5.3%
of electrogalvanizing sales in fiscal 1994 versus 1.4% in fiscal 1993.
GROSS PROFIT
MSC's gross profit percentage decreased to 24.4% in fiscal 1994 from 24.9% in
fiscal 1993. Contributing to the gross margin decrease were lower yields at the
Company's metallizing and coating facility, including significant fourth quarter
inventory adjustments. These difficulties were mitigated by higher gross profit
margins at MSC's other operations and approximately $1.8 million of insurance
proceeds related to environmental matters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to 14.6% of sales in
fiscal 1994 from 16.0% in fiscal 1993. This decrease is primarily due to the
increased sales levels in fiscal 1994 over fiscal 1993 and the impact of the
Middletown acquisition, offset, in part, by increased expenditures for
strategic purposes.
TOTAL OTHER INCOME, NET AND INCOME TAXES
Total other income, net was income of $.7 million in fiscal 1994 compared to
income of $.3 million in fiscal 1993. The increase in income was due primarily
to interest expense savings and increased interest earnings. MSC's effective tax
rate for fiscal 1994 was approximately 38% compared with 37% the prior year due
to the increase in the federal corporate tax rate.
Liquidity and Capital Resources
MSC generated $25.0 million of cash from operating activities in fiscal 1995
compared with $18.6 million in the prior fiscal year. An increased level of
sales led to higher accounts receivable and increased inventory levels as
compared to the prior fiscal year. Corresponding increases in accounts payable
and accrued expenses also were experienced as MSC expanded its sales and
operations in fiscal 1995. Working capital and cash decreased by $6.3 and $6.1
million, respectively from fiscal 1994 due mainly to MSC's large investment in
capital expenditures during fiscal 1995.
[CHART GOES HERE]
Operating Cash Flow
in millions of dollars
93 94 95
------ ------ ------
12.8 18.6 25.0
In fiscal 1995, MSC invested $29.4 million in capital improvement projects,
an increase of approximately 97% from the $14.9 million invested in fiscal 1994.
Fiscal 1995's capital expenditures included the planned Middletown facility
upgrade, an electroplating cell addition at Walbridge Coatings (included in
Investment in Partnership), and the purchase of an industrial site next to one
of MSC's facilities in Elk Grove Village, Illinois, in which a new coil coating
line is to be installed in calendar 1996. Nearly all of fiscal 1995's capital
expenditures were directly related to increasing MSC's efficiency or expanding
new product and market opportunities. On June 30, 1993, a subsidiary of MSC
purchased from AK Steel Corporation, certain of the assets (including inventory)
of its coil paint facility in Middletown, Ohio, for approximately $14.5 million,
including acquisition related costs. Available cash was used to purchase the
facility. The Company also plans to increase its capital expenditures in fiscal
1996, including investments for construction of a coil coating line in Elk Grove
Village and the last phase of the Middletown facility upgrade, as described
above.
24 MATERIAL SCIENCES CORPORATION
<PAGE>
MSC's long-term debt, less current portion decreased at fiscal year end 1995
to $6.9 million from $8.9 million in fiscal 1994 and $10.7 million in fiscal
1993 due to normally scheduled debt amortization. Long-term debt is expected to
increase by approximately $20.0 million in fiscal 1996 as MSC utilizes its
unsecured line of credit to finance a portion of its capital expenditure
program.
In fiscal 1995, the Company entered into a new $25 million unsecured line of
credit which expires August 31, 1997. There was no outstanding balance under
this line of credit at February 28, 1995. However, the Company has executed
letters of credit totalling $4.8 million against the credit facility, leaving an
available line of credit of $20.2 million at February 28, 1995. In fiscal 1996,
the Company believes that its cash flow from operations, together with available
financing (including an increase in the line of credit if required), and cash on
hand will be sufficient to fund its working capital needs, capital expenditure
program, and debt amortization.
[CHART GOES HERE]
Long-Term Debt and
Shareholders' Equity
in millions of dollars
93 94 95
------ ------ -------
73.3 86.5 105.4
10.7 8.9 6.9
Equity Long-Term Debt
MSC continues to participate in the implementation of settlements with the
government for clean-up of various Superfund sites. The Company has been named
as a potentially responsible party ("PRP") for the surface, soil and ground
water contamination at these sites. Although the ultimate cost of the Company's
share of various necessary clean-up expenses is not yet known, the Company
believes it is adequately reserved for known environmental matters, given the
information currently available. However, an issue exists between the PRPs and
the United States Environmental Protection Agency ("USEPA") regarding the scope
of the work required under the decree for one of the sites. The remedial costs
at this site could increase significantly if the PRPs are forced to conduct the
remedial work in accordance with the USEPA's position. The Company and other
settling PRPs have commenced litigation to compel several non-settling PRPs to
contribute to the clean-up of this site. During fiscal 1994, the Company reached
agreement with various liability insurers for environmental-related costs. The
agreements included cash settlements of $4,275, of which $1,800 represented the
reimbursement of previously accrued costs. The balance of the settlements was
for future environmental costs and was included in the Company's environmental
accruals. The Company believes its range of exposure for all known sites, based
on allocations of liability among PRPs and the most recent estimate of remedial
work, is $4,500 to $5,200 at February 28, 1995. The timing of the Company's cash
payments for environmental matters is not known and no assurance can be given
that the Company's environmental obligations will not increase (see accompanying
Notes to Consolidated Financial Statements).
The Company has a capital lease obligation, which was $8.4 million as of
February 28, 1995, relating to a facility which the Company subleases to the
Partnership. In addition, throughout the term of the Partnership, the Company is
contingently responsible for 50% of the Partnership's financing requirements,
including the Company's share (approximately $5.1 million) of $10.3 million in
Partnership financing loans from third parties at February 28, 1995.
Inflation
The Company believes that inflation has not had a sig-nificant impact on fiscal
1995, 1994 and 1993 results of operations in any of its product groups.
MATERIAL SCIENCES CORPORATION 25
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended February 28,
---------------------------------
(In thousands, except per share data) 1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Net Sales............................................................... $227,658 $187,701 $156,230
Cost of Sales........................................................... 165,487 141,949 117,402
-------- -------- --------
Gross Profit............................................................ $ 62,171 $ 45,752 $ 38,828
Selling, General and Administrative Expenses............................ 35,679 27,409 24,992
-------- -------- --------
Income from Operations.................................................. $ 26,492 $ 18,343 $ 13,836
Other (Income) and Expense:
Interest Income........................................................ (667) (1,057) (982)
Interest Expense....................................................... 64 112 346
Equity in Results of Partnership....................................... 485 589 526
Other, Net............................................................. (609) (333) (189)
-------- -------- --------
Total Other Income, Net............................................... $ (727) $ (689) $ (299)
-------- -------- --------
Income Before Income Taxes and Cumulative Effect of Accounting Changes $ 27,219 $ 19,032 $ 14,135
Income Taxes............................................................ 10,479 7,230 5,235
-------- -------- --------
Income Before Cumulative Effect of Accounting Changes................... $ 16,740 $ 11,802 $ 8,900
Cumulative Effect of Accounting Changes, Net............................ - - (1,283)
-------- -------- --------
Net Income.............................................................. $ 16,740 $ 11,802 $ 7,617
======== ======== ========
Income Before Cumulative Effect of Accounting Changes
Per Common and Common Equivalent Share................................. $ 1.10 $ 0.78 $ 0.67
Cumulative Effect of Accounting Changes Per Common
and Common Equivalent Share.............................................. - - (0.11)
-------- -------- --------
Net Income Per Common and Common Equivalent Share....................... $ 1.10 $ 0.78 $ 0.56
======== ======== ========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding............................... 15,241 15,057 13,383
</TABLE>
The accompanying notes are an integral part of these statements.
26 MATERIAL SCIENCES CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEETS
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
February 28,
(In thousands, except share data) 1995 1994
- - ---------------------------------------------------------------------------------------------- -------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents............................................................... $ 5,816 $ 11,930
Receivables:
Trade less reserves of $3,628 in 1995 and $3,502 in 1994.............................. 24,518 22,909
Current Portion of Partnership Note................................................... 792 804
Income Taxes.......................................................................... 2,319 --
Prepaid Expenses........................................................................ 2,343 1,242
Inventories:
Raw Materials......................................................................... 9,630 9,136
Finished Goods........................................................................ 14,135 10,442
Prepaid Taxes........................................................................... 2,246 5,797
-------- --------
Total Current Assets.................................................................. $ 61,799 $ 62,260
-------- --------
Property, Plant and Equipment:
Land and Building....................................................................... $ 28,341 $ 22,118
Machinery and Equipment................................................................. 103,704 80,118
Leasehold Improvements.................................................................. 1,156 1,060
Capital Leases.......................................................................... 17,233 17,233
Construction in Progress................................................................ 7,695 8,525
-------- --------
$158,129 $129,054
Accumulated Depreciation and Amortization (65,216) (57,006)
-------- --------
Net Property, Plant and Equipment..................................................... $ 92,913 $ 72,048
-------- --------
Other Assets:
Investment in Partnership............................................................... $ 10,917 $ 9,463
Partnership Note Receivable, Less Current Portion....................................... 1,871 2,620
Intangible Assets, Net.................................................................. 3,193 3,231
Other................................................................................... 1,664 1,970
-------- --------
Total Other Assets.................................................................... $ 17,645 $ 17,284
-------- --------
TOTAL ASSETS........................................................................ $172,357 $151,592
======== ========
- - ------------------------------------------------------------------------------------------
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt....................................................... $ 1,903 $ 1,770
Accounts Payable........................................................................ 22,521 18,661
Accrued Payroll Related Expenses........................................................ 9,274 6,778
Accrued Expenses........................................................................ 5,395 6,025
-------- --------
Total Current Liabilities............................................................. $ 39,093 $ 33,234
-------- --------
Long-Term Liabilities:
Deferred Income Taxes................................................................... $ 10,750 $ 12,704
Long-Term Debt, Less Current Portion.................................................... 6,933 8,853
Accrued Superfund Liability............................................................. 4,198 4,479
Other................................................................................... 5,979 5,858
-------- --------
Total Long-Term Liabilities........................................................... $ 27,860 $ 31,894
-------- --------
- - ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 Par Value; 10,000,000 Shares Authorized;
7,500,000 Designated Series A Junior Participating Preferred; None Issued............... $ -- $ --
Common Stock, $.02 Par Value; 20,000,000 Shares Authorized; 15,839,074 Shares Issued
and 15,150,426 Shares Outstanding at February 28, 1995, and 15,697,541 Shares Issued
and 15,008,893 Shares Outstanding at February 28, 1994.................................. 317 210
Additional Paid-In Capital................................................................ 42,776 40,574
Treasury Stock at Cost, 688,648 Shares at February 28, 1995 and 1994...................... (3,380) (3,380)
Retained Earnings......................................................................... 65,691 49,060
-------- --------
Total Shareholders' Equity............................................................ $105,404 $ 86,464
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... $172,357 $151,592
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
MATERIAL SCIENCES CORPORATION 27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands) For the years ended February 28,
CASH FLOWS FROM: 1995 1994 1993
- - --------------------------------------------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income....................................................................... $ 16,740 $ 11,802 $ 7,617
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.................................................. 8,747 7,385 6,455
Provision (Benefit) for Deferred Income Taxes.................................. 986 (1,069) 608
Cumulative Effect of Accounting Changes, Net................................... - - 1,283
Compensatory Effect of Stock Plans............................................. 647 388 1,202
Other, Net..................................................................... 464 612 527
-------- -------- --------
Operating Cash Flow Prior to Changes in Assets and Liabilities............... $ 27,584 $ 19,118 $ 17,692
-------- -------- --------
Changes in Assets and Liabilities:
Receivables.................................................................... (1,597) (4,289) (1,455)
Income Taxes Receivable........................................................ (2,319) 866 374
Prepaid Expenses............................................................... (1,101) (297) (345)
Inventories.................................................................... (4,187) (5,021) (2,309)
Accounts Payable............................................................... 3,860 4,293 (295)
Accrued Expenses............................................................... 1,866 4,228 (608)
Other, Net..................................................................... 914 (309) (227)
-------- -------- --------
Cash Flow from Changes in Assets and Liabilities............................. $ (2,564) $ (529) $ (4,865)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. $ 25,020 $ 18,589 $ 12,827
-------- -------- --------
- - ---------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital Expenditures, Net........................................................ (29,374) (14,894) (11,444)
Investment in Acquired Facility.................................................. - (12,300) -
Investment in Partnership........................................................ (1,939) (1,091) (1,020)
Distribution from Partnership.................................................... 749 748 3,566
Other Long-Term Assets........................................................... 205 (1,841) 748
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES...................................... $(30,359) $(29,378) $ (8,150)
-------- -------- --------
- - ---------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds of Debt................................................................. 150 143 19,138
Payments to Settle Debt.......................................................... (1,937) (1,891) (22,804)
Proceeds from Public Stock Offering, Net......................................... - - 21,592
Sale of Common Stock, Net of Repurchase.......................................... 1,012 956 908
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........................ $ (775) $ (792) $ 18,834
-------- -------- --------
NET INCREASE (DECREASE) IN CASH.................................................. $ (6,114) $(11,581) $ 23,511
Cash and Cash Equivalents at Beginning of Year................................... 11,930 23,511 -
-------- -------- --------
Cash and Cash Equivalents at End of Year......................................... $ 5,816 $ 11,930 $ 23,511
======== ======== ========
Supplemental Cash Flow Disclosures:
Interest Paid.................................................................. $ 981 $ 1,008 $ 1,418
Income Taxes Paid.............................................................. 11,195 7,382 4,325
</TABLE>
The accompanying notes are an integral part of these statements.
28 MATERIAL SCIENCES CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data)
- - -------------------------------------------------------------------------------
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
For the three years ended February 28, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Material Sciences Corporation and its
wholly owned subsidiaries ("MSC" or "Company"), as summarized below, conform
with generally accepted accounting principles that, in management's opinion,
reflect practices appropriate to the business in which it operates. Certain
prior year amounts have been reclassified to conform with the 1995 presentation.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts for
MSC after all intercompany transactions have been eliminated. The Company
maintains a financial interest of 50% in Walbridge Coatings ("Partnership").
Under terms of the Partnership agreement, significant actions require unanimous
consent of all partners and, therefore, the Company does not have a controlling
interest. Accordingly, the Company accounts for the Partnership under the equity
method.
INVENTORIES
Inventories are stated at the lower of cost or market, using either the
specific identification or first-in, first-out (FIFO) method of cost valuation.
Due to the continuous nature of the Company's operations, work in process
inventories are not material.
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment are recorded at cost. Improvements and
replacements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-line
method over the assets' estimated useful lives.
Facilities and equipment leased through capital leases are recorded in
Property, Plant and Equipment, with their corresponding obligations recorded in
Current and Long-Term Liabilities. The amount capitalized is the lower of the
present value of minimum lease payments or the fair value of the leased
property. Amortization of capital lease assets is recorded on a straight-line
basis, over the lease term.
The Company capitalizes interest costs as a part of the cost of constructing
major facilities and equipment.
INTANGIBLE ASSETS
Intangible assets consist principally of the excess of cost over the fair
market value of net assets acquired ("goodwill") and a non-compete agreement.
These assets are being amortized on a straight-line basis over periods of 10 to
20 years. Accumulated amortization of intangible assets was $327 and $110 at
February 28, 1995 and 1994, respectively. The Company periodically reviews
whether subsequent events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. If events and
circumstances indicate that goodwill related to a particular business should be
reviewed for possible impairment, the Company uses projections to assess whether
future operating income on a non-discounted basis (before goodwill amortization)
of the unit is likely to exceed the goodwill amortization over the remaining
life of the goodwill, to determine whether a write down of goodwill to
recoverable value is appropriate.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amounts of all financial instruments
approximate fair market value.
REVENUE RECOGNITION
The Company generally recognizes revenue upon shipment.
RESEARCH AND DEVELOPMENT
The Company expenses all research and development costs in the period
incurred. Research and development expenses were $5,404 in fiscal 1995, $3,972
in fiscal 1994, and $3,067 in fiscal 1993.
EARNINGS PER SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the periods. Common equivalent shares are determined by the treasury
stock method.
CONCENTRATIONS OF CREDIT RISKS
Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
temporary cash investments and trade receivables.
The Company places its temporary cash investments with high credit quality
financial institutions and in investment grade securities with maturities less
than 90 days. Approximately 39% of the Company's receivables are concentrated
with customers in the motor vehicle industry. At February 28, 1995, 87% of the
Company's metallizing and coating receivables are concentrated with one
distributor.
STOCK DIVIDEND
On June 16, 1994, the Board of Directors of the Company declared a stock
dividend of one-half share per share of the Company's Common Stock, which was
paid on July 28, 1994 to shareholders of record at the close of business on June
30, 1994. All share and per share data has been restated to retroactively
reflect this stock dividend.
NOTE 2: FACILITY ACQUISITION
On June 30, 1993, the Company acquired the assets of a coil paint facility
owned by AK Steel Corporation ("AKS"), in Middletown, Ohio. Consideration for
the purchase, including acquisition related costs, was $14,504 in cash and the
assumption of certain employee benefit liabilities as follows:
<TABLE>
<S> <C>
Property, Plant and Equipment.. $12,300
Non-Compete Agreement.......... 700
Deferred Income Taxes.......... 196
Other Intangible Assets........ 2,445
Employee Benefit Liabilities... (1,137)
-------
Acquisition Cost.............. $14,504
=======
</TABLE>
The Company also entered into a tolling agreement in which MSC agrees to
provide AKS with coil coating and other ancillary services from the facility of
up to approximately 75% of the facility's capacity for 10 years. The balance of
capacity is being marketed by the Company's existing sales force and shifting
production from other MSC plants that, at times, reach their capacity. AKS
represented 10% and 8% of MSC's net sales in fiscal 1995 and 1994, respectively.
MATERIAL SCIENCES CORPORATION 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data)
MATERIAL SCIENCES CORPORATION AND SUBSIDIARIES
NOTE 3: PARTNERSHIP
On August 31, 1984, the Company entered into a Partnership with subsidiaries of
Bethlehem Steel Corporation ("Bethlehem") and Inland Steel Industries, Inc.
("Inland") to pursue the production and further development of electroplated
steel.
The Company acted as general contractor to expand and modify its Walbridge,
Ohio, facility and install electroplating equipment. The facility was
transferred to the Partnership in April 1986. The line is capable of
electroplating, coil coating, or performing both processes continuously to sheet
metal coils. Bethlehem and Inland have rights to purchase all the facility's
production for the 12-year life of the Partnership. The Company's potential
alternatives upon expiration of the Partnership term in June 1998, include,
among other things, extension of the Partnership, purchase of the facility or
sale of the facility.
<TABLE>
<CAPTION>
SUMMARIZED EARNINGS AND
BALANCE SHEET INFORMATION For the years ended
OF WALBRIDGE COATINGS February 28,
EARNINGS INFORMATION 1995 1994 1993
- - --------------------------- ------- ------- -------------------
<S> <C> <C> <C>
Net Revenues............... $60,887 $57,696 $56,168
Gross Profit............... 3,729 4,192 4,779
Income from Operations..... 1,333 1,951 2,458
Net Loss................... (950) (1,018) (1,034)
February 28,
BALANCE SHEET INFORMATION 1995 1994 1993
- - --------------------------- ------- ------- ------------
Current Assets............. $10,005 $ 9,083 $ 8,502
Total Assets............... 42,824 46,132 51,027
Current Liabilities........ 8,590 8,611 8,456
Total Liabilities.......... 21,433 27,391 33,174
Partners' Capital.......... 21,391 18,741 17,853
</TABLE>
The Company's primary financial benefits from the Partnership are the revenues
billed to Walbridge Coatings for operating the facility. These revenues
represent 22%, 24% and 27% of the Company's net sales in fiscal 1995, 1994 and
1993, respectively. MSC's electrogalvinizing revenues billed to Walbridge
Coatings exclude financing and other items which are included in Walbridge
Coatings' revenues billed to Bethlehem and Inland. The profitability for
operating the facility is comparable to the Company's overall operating results.
Under the equity method of accounting, the Company includes its portion of the
Partnership net loss summarized above in Equity in Results of Partnership shown
in the Consolidated Statements of Income. The amounts do not directly correlate
to the Company's 50% ownership interest due to contractual allocation
requirements of the Partnership agreement.
As of February 28, 1995, the Company holds a $2,619 note receivable from the
Partnership, requiring semi-annual interest and level principal repayments over
the life of the Partnership. Trade receivables include amounts due from the
Partnership of $799 at February 28, 1995 and $1,166 at February 28, 1994.
The Company has guaranteed 50% of the third party debt of the Partnership. At
February 28, 1995, the Partnership debt totaled $10,250. This debt is scheduled
to be retired ratably throughout the Partnership's life by revenues paid to the
Partnership by Bethlehem, Inland and, if production does not reach a defined
contractual volume, the Company.
NOTE 4: ENVIRONMENTAL AND LEGAL MATTERS
The Company is a party to various legal proceedings connected with the clean-
up of environmental problems. These proceedings are pending against numerous
other parties in addition to the Company. The most significant proceedings
relate to the Company's involvement in Superfund sites in Kingsbury, Indiana and
Gary, Indiana. The Company has been named as a potentially responsible party
("PRP") for the surface, soil and ground water contamination at these sites. The
activities related to MSC's involvement were alleged to have occurred prior to
1984.
At the Kingsbury site, the United States District Court for the Northern
District of Indiana has entered a Consent Decree between the government and PRPs
accounting for approximately 75% of the waste volume sent to the site, including
the Company, regarding the scope of the remediation work to be performed at the
site. The estimated range of the Company's liability is $2,900 to $3,400 for
this site. Certain maintenance and long-term monitoring expenditures included in
the estimated range have been discounted approximately $1,000 at a 5% discount
rate. The expenditures related to the discounted portion of the liability are
expected to be paid ratably over 30 years. MSC maintains a Letter of Credit for
approximately $3,200 to secure its obligation to pay its currently estimated
share of the clean-up expenses at the site.
The United States District Court for the Northern District of Indiana has
also entered a Consent Decree with respect to the scope of the remediation work
at the Gary site. The estimated range of the Company's liability is $1,200 to
$1,400 for this site. This work has commenced and the Company maintains a Letter
of Credit for approximately $1,200 to secure its obligation to pay its currently
estimated share of the clean-up expenses at the Gary site.
The ultimate cost of remediation work at the Kingsbury and Gary sites and the
Company's final share thereof, net of contributions from the other PRPs, has not
yet been determined. Based on the allocations of liability among PRPs who are
parties to the decrees entered in these proceedings and the most recent
estimates of remedial costs prepared by the engineering consulting firms
retained to supervise the remedial work, the Company estimates that its share of
remedial costs and reimbursable past costs of the government will fall within
the amount reserved by the Company for such costs as of February 28, 1995.
However, an issue exists between the PRPs and the United States Environmental
Protection Agency ("USEPA") regarding the scope of the work required under the
decree for the Kingsbury site. The remedial costs at this site could increase
significantly if the PRPs are forced to conduct the remedial work in accordance
with USEPA's position. The Company and other PRPs that are parties to the decree
for the Kingsbury site are engaged in litigation with several non-settling PRPs,
including three large volume PRPs, to compel such non-settling PRPs to
contribute to the clean-up effort at this site.
The Company is involved in other environmental matters that, on an individual
basis, are not material. MSC believes that the estimated range of exposure on
all environmental matters is between $4,500 and $5,200. The Company's
environmental reserves total approximately $5,100 at February 28, 1995.
30 MATERIAL SCIENCES CORPORATION
<PAGE>
The Company currently believes that the ultimate outcome of these
proceedings, net of contributions from other PRPs, will not have a material
effect on the financial condition or the results of operations of the Company
given existing reserves recorded at February 28, 1995. However, no assurance can
be given that such information, including estimates of remedial expenses, will
not change.
During fiscal 1994, the Company reached agreement with various liability
insurers for environmental-related costs. The agreements included cash
settlements of $4,275, of which $1,800, that was previously charged to
operations, was included in gross profit. The balance of the settlements was for
future environmental costs and was included in the Company's environmental
accruals.
The Company has been named as a defendant in a lawsuit filed by a former
distributor of solar control window film in a California state court. The
lawsuit arises primarily out of disagreements over warranty policy provisions
and termination of the former distributor. The amount of the claim is uncertain
and the Company believes that it has meritorious arguments against such claim
which it will vigorously assert. The Company currently believes that the
ultimate outcome of this proceeding will not have a material effect on the
financial condition or results of operations of the Company.
Note 5: Indebtedness
Long-term debt, inclusive of capital leases, consists of the obligations
presented in the chart below. Projected maturities of long-term debt, assuming
no conversion or redemption, also are presented in the chart below.
<TABLE>
<CAPTION>
February 28,
--------------------
Long-Term Debt Obligations 1995 1994
------ -------
<S> <C> <C>
Subordinated Convertible Notes.... $ 436 $ 906
Obligations Under Capital Leases
(Note 6)......................... 8,400 9,717
------ -------
$8,836 $10,623
Less Current Portion.............. 1,903 1,770
------ -------
Long-Term Debt.................... $6,933 $ 8,853
====== =======
</TABLE>
<TABLE>
<CAPTION>
Projected Maturities of
Long-Term Debt At February 28, 1995
--------------------
<S> <C>
1996.............................. $ 1,903
1997.............................. 1,634
1998.............................. 1,819
1999.............................. 1,060
2000.............................. 451
2001 and thereafter............... 1,969
-------
Total............................ $ 8,836
=======
</TABLE>
The Company entered into a new $25,000 unsecured bank credit agreement in
fiscal 1995. At the option of the Company, interest is at the bank's reference
rate (9.0% at February 28, 1995), or at LIBOR plus 1/2%, which generally is
lower than the bank's reference rate. This agreement expires on August 31, 1997,
or earlier at the Company's option. MSC pays a commitment fee of 3/8% per annum
on the unused balance of the first $10,000 of credit; 1/4% per annum on $15,000
of reserved credit; and is required to maintain $500 in compensating balances.
The agreement requires the Company to adhere to certain covenants, some of which
are adjusted quarterly. The most significant of these covenants include
restrictions relating to its current ratio (1.2:1.0), liabilities to net worth
(1.5:1.0), tangible net worth ($88,222) and interest coverage (2.0x). The
Company was in compliance with all covenants for the period ending February 28,
1995. Three irrevocable letters of credit totalling $4,790 were outstanding,
which reduced the available borrowings to $20,210 at February 28, 1995.
The subordinated convertible notes ("Notes") bear interest at the reference
rate of the unsecured bank credit agreement, subject to a maximum interest rate
of 14%, and are convertible, at the request of the Noteholders, into shares of
the Company's common stock at the rate of $10.22 of principal per share. The
final principal redemption payment of $436 is required in fiscal 1996. The
payment of principal and interest on these Notes is subordinate to the payment
of all other Company creditors. A maximum of 42,616 shares of common stock have
been reserved for the conversion option contained in the Notes.
Note 6: Leases
The Company leases one manufacturing facility and some machinery and equipment
under capital leases that include renewal options. Another manufacturing
facility and other equipment are leased under non-cancelable operating leases.
The Walbridge, Ohio facility lease contains certain covenants with which the
Company is in compliance. The Company subleases its interest in this facility to
the Partnership. The sublease contains substantially the same terms and
conditions as the lease, with the monthly payment paid directly to the lessor by
the Partnership. The Company has assigned all of its rights under the sublease
to the lessor. The Company also has agreed to purchase the mortgage loan on the
facility in the event of default by the lessor.
Some leases also contain escalation provisions based upon specified inflation
indices. The table below presents future minimum lease payments and sublease
income.
<TABLE>
<CAPTION>
Minimum Lease Capital Sublease Operating
Payments Leases Income Leases
------- -------- ---------
<S> <C> <C> <C>
1996................. $ 2,357 $ 2,354 $ 1,717
1997................. 2,364 2,363 1,078
1998................. 2,373 2,373 137
1999................. 1,440 992 110
2000................. 768 - 89
2001 and thereafter.. 2,497 - 253
------- ------- -------
Total Minimum
Lease Payments...... $11,799 $ 8,082 $ 3,384
======= =======
Amount Representing
Interest............ 3,399
-------
Present Value
of Minimum Lease
Payments............ $ 8,400
=======
</TABLE>
MATERIAL SCIENCES CORPORATION 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data)
- - --------------------------------------------------------------------------------
Material Sciences Corporation and Subsidiaries
Amortization of leased property was $980 in fiscal 1995, $971 in fiscal 1994,
and $1,165 in fiscal 1993.
Total rental expense under operating leases was $2,511 in fiscal 1995, $2,145
in fiscal 1994, and $1,892 in fiscal 1993.
Note 7: Retirement Plans
The Company has non-contributory defined benefit and defined contribution
pension plans that cover a majority of its employees. The Company funds amounts
required to meet ERISA funding requirements for the defined benefit plans. The
Company makes an annual contribution for the defined contribution plans after
the end of each calendar year for the amount earned by participating employees
during that preceding calendar year. In addition to the benefits previously
described, some Company officers participate in a non-contributory supplemental
pension plan.
Certain of the Company's defined benefit plans have been merged and frozen
pending termination. These plans were replaced with defined contribution plans.
The discount rate used for the merged and frozen plans is 7.5% to 8.0% in 1995
and 6.0% in 1994 and 1993. For plans that have not been frozen, the discount
rate was 8.0% in all years presented. The following tables detail the defined
benefit and non-contributory supplemental pension plans.
<TABLE>
<CAPTION>
For the years ended
February 28,
Components of Net Periodic ---------------------
Pension Cost 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service Cost Benefits Earned
During the Period............ $ 353 $ 375 $ 680
Interest Cost on Projected
Benefit Obligation........... 737 675 671
Actual Return on Assets....... (612) (594) (550)
Net Amortization
and Deferral................. 41 81 120
Adjustment to Recognize
Minimum Liability............ - - 92
Adjustment for Curtailment.... - - (117)
----- ----- -----
Net Periodic Pension Cost..... $ 519 $ 537 $ 896
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
For the years ended
Assumptions Used in February 28,
Determining the Plan's ---------------------
Funded Status 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Expected Long-Term
Rate of Return on Assets..... 8.0% 8.0% 8.0%
Rate of Increase in
Compensation Levels.......... 6.0% 6.0% 6.0%
</TABLE>
<TABLE>
<CAPTION>
February 28,
-----------------------------------
Plans Whose Plans Whose
Assets Exceed Accumulated
Accumulated Benefits Exceed
Pension Plans' Benefits Assets
Funded Status 1995 1994 1995 1994
------- ------- -------- -------
<S> <C> <C> <C> <C>
Plan Assets
at Fair Value....... $5,643 $5,264 $1,966 $2,315
====== ====== ====== ======
Accumulated
Benefit Obligation
Vested............ $3,977 $4,312 $3,853 $3,953
Unvested.......... 808 931 579 593
------ ------ ------ ------
Accumulated Benefit
Obligation.......... $4,785 $5,243 $4,432 $4,546
Additional Benefits
Based on
Projected Salary
Levels.............. - - 914 1,021
------ ------ ------ ------
Projected Benefit
Obligation.......... $4,785 $5,243 $5,346 $5,567
------ ------ ------ ------
Projected Benefit
Obligation in
Excess of (Less
Than) Plan Assets... $ (858) $ (21) $3,380 $3,252
Unrecognized
(Loss) Gain......... 338 (395) (132) 170
Prior Service Cost... (112) - (369) (824)
Unrecognized Net
Obligation on
March 1............. 18 - (47) (32)
Adjustment to
Recognize
Minimum
Liability........... - - 297 220
------ ------ ------ ------
Pension (Asset)
Liability
Recognized in
the Consolidated
Balance Sheets...... $ (614) $ (416) $3,129 $2,786
====== ====== ====== ======
</TABLE>
The Company sponsors defined contribution plans for certain salaried and hourly
employees based upon a percentage of the employees' covered earnings as provided
for in the plan. The cost of this plan was $1,296 in fiscal 1995, $958 in fiscal
1994, and $90 in fiscal 1993.
The Company provides its retired employees with certain post-retirement
health care benefits, which the Company may periodically amend or modify.
Substantially all employees may be eligible for these benefits if they reach
normal retirement age while employed by the Company. In fiscal 1993, the Company
established a reserve of $2,037 to immediately recognize the cost of post-
retirement benefits that may eventually be paid. This cumulative effect of
accounting change ($1,283 net of income taxes) was made in accordance with SFAS
106 "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" and
charged retroactively to the first quarter of 1993. Prior to 1993, the Company
recognized post-retirement health care costs in the year the benefits were paid.
The Company assumed $887 of active participant accumulated post-retirement
obligations relating to the Middletown facility acquisition in fiscal 1994.
Payments for post-retirement health care benefits were $95 in fiscal 1995, $112
in fiscal 1994, and $102 in fiscal 1993.
32 MATERIAL SCIENCES CORPORATION
<PAGE>
The following table presents a reconciliation of the funded status of the
plan to the accrued benefit cost:
<TABLE>
<CAPTION>
Accumulated Post-Retirement February 28,
Benefit Obligations 1995 1994
------ ------
<S> <C> <C>
Retirees............................................................... $ 709 $ 959
Other Fully Eligible Participants...................................... 266 127
Other Active Participants.............................................. 468 653
------ ------
Accumulated Post-Retirement
Benefit Obligation.................................................... $1,443 $1,739
Unrecognized Net Gain and
Prior Service Cost.................................................... 1,683 1,384
------ ------
Accrued Post-Retirement
Benefit Cost.......................................................... $3,126 $3,123
====== ======
</TABLE>
<TABLE>
<CAPTION>
For the years ended
Net Periodic Post- February 28,
Retirement Benefit Cost 1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Service Cost........................................................... $ 73 $ 49 $102
Interest Cost on
Accumulated
Benefit Obligation.................................................... 104 132 158
Net Amortization
and Deferral.......................................................... (79) (28) -
----- ---- ----
Net Periodic
Post-Retirement
Benefit Cost.......................................................... $ 98 $153 $260
===== ==== ====
</TABLE>
The discount rate used in determining the accumulated post-retirement benefit
obligation was 8% in 1995, 1994 and 1993.
The Company continues to review its post-retirement benefits, incorporating
actual and anticipated benefit changes. In determining the present value of the
accumulated post-retirement benefit obligation, of which only a minor amount has
been funded, and net cost, MSC used a 10% to 15% health care cost trend rate
decreasing until leveling off at 5% in Year 2010.
A 1% increase in the assumed health care cost trend rate would increase the
Accumulated Post-Retirement Benefit Obligation as of February 28, 1995 by
approximately $262 and the total of the service and interest cost components of
net post-retirement health care cost for the year then ended by approximately
$42.
Note 8: Shareholders' Equity
<TABLE>
<CAPTION>
The table presented below reconciles Additional
the Shareholders' Equity accounts. Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
----------- ------ ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance February 29, 1992................... 8,307,020 $166 $15,572 $29,641 (459,099) $(3,380)
Net Income.................................. - - - 7,617 - -
July Public Offering of Common Stock........ 1,807,400 36 21,556 - - -
Other Sale of Common Stock.................. 126,537 3 898 - - -
Compensatory Effect of Stock Plans.......... (7,401) - 1,202 - - -
Repayment of Officer Promissory Notes....... - - 7 - - -
---------- ---- ------- ------- -------- -------
Balance February 28, 1993................... 10,233,556 $205 $39,235 $37,258 (459,099) $(3,380)
Net Income.................................. - - - 11,802 - -
Sale of Common Stock........................ 91,995 2 954 - - -
Compensatory Effect of Stock Plans.......... 139,604 3 385 - - -
---------- ---- ------- ------- -------- -------
Balance February 28, 1994................... 10,465,155 $210 $40,574 $49,060 (459,099) $(3,380)
Net Income.................................. - - - 16,740 - -
Sale of Common Stock........................ 85,324 1 1,014 - - -
Compensatory Effect of Stock Plans.......... 31,700 - 647 - - -
Tax Benefit from Exercise of Stock Options.. - - 541 - - -
Impact of Stock Dividend.................... 5,256,895 106 - (109) (229,549) -
---------- ---- ------- ------- -------- -------
Balance February 28, 1995................... 15,839,074 $317 $42,776 $65,691 (688,648) $(3,380)
========== ==== ======= ======= ======== =======
</TABLE>
MATERIAL SCIENCES CORPORATION 33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data)
- - -------------------------------------------------------------------------------
Material Sciences Corporation and Subsidiaries
Note 9: Equity Plans
The Company maintains various director and employee stock plans. On February
28, 1995, the Company had either granted options, awarded restricted stock, or
sold stock totalling 2,902,307 shares out of a maximum of 3,600,000 authorized
for all plans.
Options granted under the 1985 plan have been for the purchase of shares of
common stock at 75% or 100% of the fair market value at the grant date. The
options expire after five or ten years from the date of grant and vest ratably
over five years.
Options granted under the 1992 Omnibus plan have been for the purchase of
common stock at 100% of the fair market value at the grant date. The options
expire after 10 years from the date of grant and vest at the end of two or more
years from the date of grant.
A summary of transactions under the stock option plans is presented below.
<TABLE>
<CAPTION>
Stock Option Key Option
Activity Directors Employees Price Per Share
---------- --------- ----------------
<S> <C> <C> <C>
Outstanding at
February 29,
1992................ 128,925 326,475 $ 4.95 to $ 7.11
Granted.............. - 749,700 $10.05
Exercised............ (47,025) (79,875) $ 4.95 to $ 7.11
Cancelled............ (14,400) (6,750) $ 4.95 to $10.05
------- ---------
Outstanding at
February 28,
1993................ 67,500 989,550 $ 4.95 to $10.05
Granted.............. 54,000 351,900 $11.42 to $15.00
Exercised............ (13,500) (67,500) $ 5.28 to $ 6.00
Cancelled............ - (90,150) $10.05 to $14.25
------- ---------
Outstanding at
February 28,
1994................ 108,000 1,183,800 $ 4.95 to $15.00
Granted.............. - 47,550 $14.67 to $17.33
Exercised............ (3,600) (37,000) $ 4.95 to $10.05
Cancelled............ - (7,500) $14.25
------- ---------
OUTSTANDING AT
FEBRUARY 28,
1995................ 104,400 1,186,850 $ 4.95 to $17.33
======= ========= ================
EXERCISABLE AT
FEBRUARY 28,
1995................ 39,600 756,350
======= =========
</TABLE>
Shares of restricted stock are awarded in the name of the employee, who has
all rights of a shareholder, subject to certain restrictions or forfeitures.
Shares issued prior to 1992 vested in 1993 or 1994 based on the achievement of
certain performance based criteria specified in the plan or upon the passage of
time. Restricted shares issued in 1994 and 1995 generally expire and vest over a
five to eight year period and are subject to accelerated vesting if the market
value of the Company's stock exceeds the levels specified in the plan. As an
incentive to participants to retain these shares upon vesting, the Company
granted a matching option at fair market value that vests two years after the
vesting of the restricted stock if that restricted stock is still held by the
participant. The number of options and price per share are included in the stock
option activity table above. The market value of the restricted shares is
amortized to compensation expense over the period in which the shares vest based
upon the passage of time. In the event of accelerated vesting due to the
achievement of market value appreciation as defined by the plan, the recognition
of the unamortized expense would be accelerated.
A summary of transactions under the restricted stock plans is presented
below.
<TABLE>
<CAPTION>
Key
Restricted Stock Activity Employees
----------
<S> <C>
Unvested at February 29, 1992..................... 342,562
Granted........................................... -
Vested............................................ (100,161)
Cancelled......................................... (11,101)
--------
Unvested at February 28, 1993..................... 231,300
Granted........................................... 231,750
Vested............................................ (216,756)
Cancelled......................................... (22,344)
--------
Unvested at February 28, 1994..................... 223,950
Granted........................................... 47,550
Vested............................................ -
Cancelled......................................... (1,500)
--------
UNVESTED AT FEBRUARY 28, 1995..................... 270,000
========
</TABLE>
Compensation effects arising from the difference between market and exercise
prices at date of option grant or restricted stock issuance were $647 in 1995,
$388 in 1994 and $1,202 in 1993, and have been charged against income and
recorded as Additional Paid-In Capital.
The Employee Stock Purchase Plan permits eligible employees to purchase
shares of common stock at 85% of the lower fair market value of the stock as of
two measurement dates six months apart. During fiscal years 1995, 1994 and 1993;
53,382, 56,993 and 63,161 shares, respectively, were sold to employees under
this plan.
On July 2, 1986, the Company issued a dividend of one right for each
outstanding common share to shareholders of record on that date. Each right
entitles the holder, upon the occurrence of certain events relating to changes
in ownership of the Company, to buy from the Company two thirds of one share of
Series A junior participating preferred stock for $80.00 per share. If the
Company is involved in a business combination or other defined transaction, the
rights holders will be entitled to buy certain stock of the acquiring company.
Alternatively, upon the occurrence of defined events, rights owned by certain
shareholders would become exercisable for a defined number of shares of common
stock of the Company. The Company is entitled to redeem the rights at $0.022 per
right under certain circumstances. The rights expire on July 1, 1996.
34 MATERIAL SCIENCES CORPORATION
<PAGE>
Note 10: Interest Expense
The table presented below analyzes the components of interest expense.
<TABLE>
<CAPTION>
For the years ended
February 28,
Interest Expense 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Capital Leases, Net............................. $ - $ - $ 46
Other........................................... 124 112 300
Capitalized..................................... (60) - -
----- ----- -----
Total........................................... $ 64 $ 112 $ 346
===== ===== =====
</TABLE>
Capital Leases, Net, excludes interest expense of $869, $888, and $1,068 for
fiscal years 1995 through 1993, respectively, relating to the Walbridge, Ohio
facility. This facility is subleased to the Partnership. The interest expense
and amortization relating to this lease is reduced by sublease income received
from the Partnership, and the net result is included in Other, Net.
Note 11: Income Taxes
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes,"
requiring the Company to change its method of accounting for income taxes to an
asset and liability approach. This new standard was implemented by the Company
as of March 1, 1992. Implementation caused no material effect upon the Company's
financial statements.
Deferred income taxes are provided for differences arising between financial
and taxable income resulting primarily from the use of accelerated cost recovery
methods and certain transactions which are deferred for recognition until
economic occurrence of the event.
The components of the provision for income taxes and a reconciliation between
the statutory rate for federal income taxes and the effective tax rate are
summarized and presented below.
<TABLE>
<CAPTION>
For the years ended
February 28,
Tax Provision 1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Current:
Federal......................................... $ 8,130 $ 7,053 $3,731
State........................................... 1,363 1,246 896
------- ------- ------
$ 9,493 $ 8,299 $4,627
Deferred:
Federal......................................... 852 (907) 707
State........................................... 134 (162) (99)
------- ------- ------
$ 986 $(1,069) $ 608
------- ------- ------
Total Provision.................................. $10,479 $ 7,230 $5,235
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
For the years ended
February 28,
Tax Rate Reconciliation 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal Statutory Rate................................. 35.0% 35.0% 34.0%
State and Local Taxes, Net
of Federal Tax Benefit................................ 5.5 5.7 5.6
Prior Years' Claim Refunds............................. - - (2.0)
Research and Development
Tax Credits........................................... (0.7) (1.2) -
Tax Exempt Interest Income............................. (0.4) (0.6) (0.8)
Other, Net............................................. (0.9) (0.9) 0.2
---- ---- ----
Effective Income Tax Rate.............................. 38.5% 38.0% 37.0%
==== ==== ====
</TABLE>
Temporary differences and carryforwards that give rise to deferred tax (assets)
and liabilities are as follows:
<TABLE>
<CAPTION>
February 28,
1995 1994
------- --------
<S> <C> <C>
Property and Equipment............................... $13,821 $ 9,795
Reserves not Deductible Until Paid................... (3,668) (4,183)
Employee Benefit Liabilities......................... (2,945) (2,809)
Deferred State Income Taxes, Net..................... 1,155 1,763
Capital Loss Carryforward............................ - (1,620)
Other................................................ 141 2,341
------- --------
Subtotal............................................ $ 8,504 $ 5,287
Valuation Allowances................................. - 1,620
------- --------
Deferred Tax Liabilities, Net........................ $ 8,504 $ 6,907
======= ========
</TABLE>
In connection with the adoption of SFAS No. 109, valuation allowances were
established for uncertainties in realizing the tax benefit of a capital loss
carryforward which expired in 1995.
Deferred Tax Liabilities, Net, have been recorded on the Company's balance
sheet as follows:
<TABLE>
<CAPTION>
February 28,
1995 1994
------- -------
<S> <C> <C>
Long-Term Liabilities --
Deferred Income Taxes................................... $10,750 $12,704
Current Assets -- Prepaid Taxes........................... (2,246) (5,797)
------- -------
$ 8,504 $ 6,907
======= =======
</TABLE>
Note 12: Summary of Quarterly Data
(Unaudited)
The table presented below is a summary of quarterly data for the years ended
February 28, 1995 and 1994.
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES.................................. $58,822 $59,415 $56,798 $52,623
GROSS PROFIT............................... 15,050 15,589 16,776 14,756
NET INCOME................................. 4,081 4,463 4,600 3,596
NET INCOME
PER SHARE................................. $ 0.27 $ 0.29 $ 0.30 $ 0.24
1994
Net Sales.................................. $41,615 $47,658 $48,282 $50,146
Gross Profit............................... 9,918 11,197 11,222 13,415
Net Income................................. 2,515 3,125 2,766 3,396
Net Income
Per Share................................. $ 0.17 $ 0.21 $ 0.19 $ 0.22
</TABLE>
The summation of the fiscal 1994 quarterly earnings per share differs from
the annual computation of earnings per share due to the timing of stock
transactions.
MATERIAL SCIENCES CORPORATION 35
<PAGE>
SELECTED FINANCIAL DATA
- - --------------------------------------------------------------------------------
Material Sciences Corporation and subsidiaries
<TABLE>
<CAPTION>
(Dollars and numbers of
shares in thousands,
except per share data) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating Results
Net Sales........................................ $227,658 $187,701 $156,230
Gross Profit..................................... 62,171 45,752 38,828
Selling, General and Administrative Expenses..... 35,679 27,409 24,992
Income from Operations........................... 26,492 18,343 13,836
Net Income (Loss)(1)(2)(3)....................... 16,740 11,802 7,617
Per Share Information:(4)........................
Net Sales....................................... $ 14.94 $ 12.47 $ 11.67
Net Income (Loss)............................... 1.10 0.78 0.56
Cash Dividends.................................. - - -
Shareholders' Equity............................ 6.92 5.74 5.48
Market Price:...................................
High........................................... $ 17.75 $ 17.63 $ 12.00
Low............................................ $ 13.75 $ 10.63 $ 7.88
Close.......................................... $ 15.88 $ 17.63 $ 11.00
P/E (High)...................................... 16.1x 22.6x 21.4x
P/E (Low)....................................... 12.5x 13.6x 14.1x
-------- -------- --------
Financial Position
Total Assets..................................... $172,357 $151,592 $128,711
Working Capital.................................. 22,706 29,026 37,749
Net Property, Plant and Equipment................ 92,913 72,048 52,151
Long-Term Debt, Less Current Portion............. 6,933 8,853 10,696
Shareholders' Equity............................. 105,404 86,464 73,318
Total Capital Invested........................... 114,240 97,087 85,689
-------- -------- --------
Key Ratios
Gross Profit as a % of Net Sales................. 27.3% 24.4% 24.9%
SG&A Expenses as a % of Net Sales............... 15.7% 14.6% 16.0%
Income From Operations as a % of Net Sales....... 11.6% 9.8% 8.9%
Net Income (Loss) as a % of Net Sales............ 7.3% 6.3% 4.9%
Research and Development as a % of Net Sales.... 2.4% 2.1% 2.0%
Effective Income Tax Rate........................ 38.5% 38.0% 37.0%
Current Ratio.................................... 1.6 1.9 2.5
Long-Term Debt to Shareholders' Equity........... 6.6% 10.2% 14.6%
Outstanding Debt as a % of Total Capital Invested 7.7% 10.9% 14.4%
Return on Average Shareholders' Equity........... 17.4% 14.8% 13.2%
Return on Average Total Capital Invested......... 15.8% 12.9% 10.6%
-------- -------- --------
Other Statistics
Capital Expenditures, Net........................ $ 29,374 $ 14,894 $ 11,444
Cash Flows Before Financing Activities(5)........ (5,339) (10,789) 4,677
Depreciation and Amortization.................... 8,747 7,385 6,455
Sales per Employee............................... 246 227 231
Weighted Average Number of Common
and Common Equivalent Shares Outstanding(4).... 15,241 15,057 13,383
Shareholders of Record........................... 1,110 796 891
Number of Employees.............................. 925 826 675
</TABLE>
(1) MSC recorded a pretax special charge against income of $2,000 during the
fourth quarter of 1991 to provide for a management reorganization. In 1990,
the Company recorded pretax special charges of $13,377 against income for
the restructuring of its investment in metallizing and coating operations
and $4,750 for environmental matters.
(2) Total Other (Income) and Expense for 1990 includes a pretax loss of $23,490
on the disposition of its former subsidiary, Scharr Industries, Inc.
(3) In 1993, MSC recorded the cumulative effect of adopting SFAS No. 106 and
No. 109, which reduced net income by $1,283 net of income taxes or $0.11
per share.
(4) The above data has been restated to reflect two separate one-half share per
share dividends to shareholders of record on March 16, 1992 and June 30,
1994.
(5) This figure represents net cash provided by operating activities less net
cash used in investing activities. The 1994 figure includes a cash outflow
of $14,504 for the investment in acquired facility.
NM: Not meaningful.
36 MATERIAL SCIENCES CORPORATION
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
- - --------------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986 1985
- - -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$142,599 $139,459 $152,747 $172,393 $152,305 $126,270 $113,704 $102,964
34,359 33,529 26,793 34,876 29,944 24,329 32,908 31,486
22,710 22,556 22,824 20,272 18,151 14,070 10,198 8,993
11,649 8,973 (14,158) 14,604 11,793 10,259 22,710 22,493
7,141 4,688 (30,417) 7,874 5,668 6,480 10,708 10,118
$ 12.67 $ 12.56 $ 13.61 $ 15.35 $ 13.14 $ 10.82 $ 9.89 $ 9.06
0.63 0.42 (2.71) .70 0.49 0.56 0.93 0.89
- - - - - - - -
3.73 2.79 2.27 5.04 4.14 3.79 3.22 2.29
$ 10.38 $ 7.63 $ 7.75 $ 8.88 $ 12.13 $ 12.63 $ 8.63 $ 8.50
$ 4.88 $ 4.13 $ 5.00 $ 6.00 $ 4.75 $ 7.50 $ 5.75 $ 3.88
$ 10.38 $ 5.25 $ 5.00 $ 7.00 $ 6.75 $ 11.00 $ 8.00 $ 7.63
16.5x 18.2x NM 12.7x 24.8x 22.6x 9.3x 9.6x
7.7x 9.8x NM 8.6x 9.7x 13.4x 6.2x 4.4x
- - -------- -------- -------- -------- -------- -------- -------- --------
$100,967 $104,233 $110,801 $131,407 $117,631 $112,617 $141,839 $ 82,868
9,709 17,369 23,191 24,088 12,877 8,935 10,646 6,736
47,163 46,019 42,966 56,860 52,026 49,081 94,901 53,499
13,801 29,400 42,370 37,434 33,826 32,955 76,396 39,099
41,995 30,949 25,477 56,583 48,017 44,263 37,004 26,033
58,032 62,118 70,072 96,119 84,767 80,697 116,633 66,380
- - -------- -------- -------- -------- -------- -------- -------- --------
24.1% 24.0% 17.5% 20.2% 19.7% 19.3% 28.9% 30.6%
15.9% 16.2% 14.9% 11.8% 11.9% 11.2% 9.0% 8.7%
8.2% 6.4% (9.3%) 8.5% 7.7% 8.1% 20.0% 21.8%
5.0% 3.4% (19.9%) 4.6% 3.7% 5.1% 9.4% 9.8%
2.0% 1.8% 1.5% 1.1% 1.6% 1.2% 1.6% 1.1%
39.0% 40.0% 22.1% 39.3% 40.9% 17.7% 49.2% 49.6%
1.4 1.7 1.9 2.0 1.5 1.3 1.4 1.5
32.9% 95.0% 166.3% 66.2% 70.4% 74.5% 206.5% 150.2%
27.6% 50.2% 63.6% 41.1% 43.4% 45.1% 68.3% 60.8%
19.6% 16.6% NM 15.1% 12.3% 15.9% 34.0% 48.3%
11.9% 7.1% NM 8.7% 6.9% 6.6% 11.7% 18.1%
- - -------- -------- -------- -------- -------- -------- -------- --------
$ 8,333 $ 7,558 $ 9,633 $ 10,150 $ 7,661 $ 7,134 $ 6,495 $ 1,557
11,060 11,840 (7,374) (3,600) 5,358 41,248 (33,431) (8,076)
6,383 5,673 6,710 6,108 5,509 4,979 3,882 3,454
223 212 228 216 198 173 196 209
11,259 11,106 11,226 11,228 11,588 11,672 11,492 11,366
750 856 824 1,316 1,433 1,537 1,853 1,859
639 657 670 797 771 730 579 492
</TABLE>
MATERIAL SCIENCES CORPORATION 37
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
STATE OF
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
- - ------------------------------- ---------------
Pre Finish Metals Incorporated Illinois
Pre Finish Metals (Morrisville) Incorporated Delaware
Pre Finish Metals (Middletown) Incorporated Delaware
Pre Finish Metals (EG) Incorporated Delaware
Deposition Technologies, Incorporated California
Material Sciences Foreign Sales Corporation U. S. Virgin Islands
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated April 20, 1995, included in or incorporated by
reference in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (No. 33-00067, 33-40610, 33-41310, 33-57648 and
33-81064).
ARTHUR ANDERSEN LLP
Chicago, Illinois,
May 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> MAR-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 5,816
<SECURITIES> 0
<RECEIVABLES> 28,146
<ALLOWANCES> 3,628
<INVENTORY> 23,765
<CURRENT-ASSETS> 61,799
<PP&E> 158,129
<DEPRECIATION> 65,216
<TOTAL-ASSETS> 172,357
<CURRENT-LIABILITIES> 39,093
<BONDS> 6,933
<COMMON> 317
0
0
<OTHER-SE> 105,087
<TOTAL-LIABILITY-AND-EQUITY> 172,357
<SALES> 227,658
<TOTAL-REVENUES> 277,658
<CGS> 165,487
<TOTAL-COSTS> 165,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 27,219
<INCOME-TAX> 10,479
<INCOME-CONTINUING> 16,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,740
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
